NEW DELHI: President Xi Jinping notified China’s richest citizens on Tuesday and presented a draft for “shared prosperity,” which, according to state media reports, includes income regulation and redistribution.
Since Xi’s inauguration in 2012, the ruling party has made it a priority to end poverty and build a society of moderate prosperity, goals that the party sees as central goals for promoting well-being and strengthening its governance.
Income inequality in the country is huge – the richest 20% earn more than ten times the poorest 20% – and has not moved since 2015.
Beijing has made massive efforts to reduce poverty, especially in rural areas. More recently, it has been targeting the higher end of the spectrum, with crackdown on the tech industry that shaped several billionaires and criticism of the excesses of celebrity culture.
At the Communist Party’s Central Committee on Financial and Economic Affairs on Tuesday, the government detailed new strategies to attack the upper echelons.
Officials vowed to “strengthen high income regulation and adjustment, protect legal income, appropriately adjust excessive incomes, and encourage high-income groups and businesses to give more back to society,” a summary of the meeting read by state-run Xinhua media has been published .
At the same time, officials also pledged to expand the middle income bracket, raise lower income brackets, and ban illegal income to promote social justice and justice.
It also reiterated Deng Xiaoping’s famous words of “making some people get rich first,” adding that it will create an environment where more people can get rich.
Property and inheritance taxes
Economists say the moves suggest Beijing is getting closer to introducing taxes on property and inheritance.
The authorities have been talking about a property tax for a long time and have been testing home taxation in Shanghai and Chongqing since 2011.
A high-level meeting in May indicated officials may push for implementation again.
“China’s wealth and income inequality has worsened so much that policymakers have no choice but to face it and make it a priority,” said Larry Hu, head of Greater China Economics at the Macquarie Group in Hong Kong .
Xi’s meeting “took the issue to the highest level” and is an important signal for future political direction, he said.
Carol Liao, China economist at Pimco Asia Ltd, said capital gains taxes are also an option, as are other measures to improve income distribution, such as improving social security programs, providing incentives for charity and increasing government transfers to less developed regions.
China has no inheritance tax and introducing one would have an important regulatory effect on wealth distribution, Shi Zhengwen, a professor of tax law at the China University of Political Science and Law, quoted Yicai in the financial press as saying.
At Xi’s meeting, officials promised to create conditions for people to improve their education and climb the income ladder. They also called for equal access to public services by improving housing, care for the elderly and the medical system.
The meeting also highlighted the need to contain financial risks. Xinhua said efforts should be made to strike a balance between ensuring stable economic growth and avoiding financial risks.
Zhejiang experiment
The government has identified eastern Zhejiang Province, home of Alibaba Group Holding Ltd and known for its robust private sector, as the pilot zone for the new initiatives.
Last month, Zhejiang released detailed plans to increase disposable income per capita to 75,000 yuan (11,563) by 2025, an increase of 45% over five years. She also wants wages to be more than half of their gross domestic product and the urbanization rate to rise to 75%.
To achieve these goals, the provincial government will encourage workers to bargain collectively on wages; publicly traded companies to collect cash dividends to shareholders; and farmers to pursue business strategies. It will also encourage the development of financial products for the benefit of residents.
The roadmap also states that the government will better protect the rights of people in new forms of employment, including delivery drivers and drivers who work for ridesharing companies, and introduce tax breaks for philanthropic donations.