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Filling the gaps in GDP

(China Daily)
Updated: 2009-05-12 07:52

The low ratio of fiscal revenue to GDP doesn't mean the government has not got enough from the national annual income, says an article in Changjiang Daily. Excerpts:

Let's put two recent news reports side by side: one says that the central government is mulling over a plan to increase the ratio of incomes from labor to national income initial distribution. The other says that the current ratio of fiscal revenue to GDP - up from 24 to 30 percent between 2003 and 2007 - is lower than the world average of around 40 percent.

The two reports are making two different points. The plan in the first one is meant to allow the masses a bigger share of the cake (of national income) while the ratio in the second one seems to tell us that what the government cuts off from the cake is not a big enough chunk.

In many advanced countries, the proportion of people's income in GDP is generally between 54 and 65 percent while fiscal revenue usually accounts for some 40 percent of GDP, adding up to 100 percent

Strangely, it is not so in China. The Chinese government's fiscal revenue accounts for some 30 percent of GDP and the masses' income 22 percent - the two adding up to only 52 percent of GDP. That leaves a big hole in composition of GDP. Where does the rest come from?

Actually, the hole comes from the following: the first part, also the largest, is the extra revenues out of the normal fiscal revenue. In 2005, the extra budgetary revenue reached 1.3 trillion yuan; the land use right sales 0.5 trillion yuan; and the social security income 0.8 trillion yuan. The above three extra revenues stood at as much as 2.6 trillion yuan in 2005 while fiscal revenue for the year was 3.2 trillion yuan. If we add the two, we would find that the all the revenues the government gained could account for quite a high proportion of GDP.

The profits made by State enterprises also form a large part of the hole. Due to the advantage of monopoly, these enterprises made huge profits, but seldom did they hand over part of the profits to the nation.

Corruption is also a component of GDP. As various types of forms of corruption swept across China in the late 1990s, the money eroded by corruption could be 13.2 to 16.8 percent of GDP, as economist Hu Anguang calculated in his research.

From the above, we can see the proportion of the revenues gained by the government to GDP is by no means lower than the world average. Actually, it's even higher than world average.

(China Daily 05/12/2009 page6)