Transcribed
China : Government spending on health and education
3.9.11 Nonperforming loans, commercial banks Ratio 3_ 2_ 2008 2009 2010 2011 2012 Source: CEIC Data Company (accessed 14 March 2013). 3.9.12 Government spending on health and education % of GDP 2008 2009 2010 2011 2012 Sources: CEIC Data Company (accessed 14 March 2013); ADB estimates. 3.9.11 Nonperforming loans, commercial banks Ratio 3_ 2_ 2008 2009 2010 2011 2012 Source: CEIC Data Company (accessed 14 March 2013). 3.9.12 Government spending on health and education % of GDP 2008 2009 2010 2011 2012 Sources: CEIC Data Company (accessed 14 March 2013); ADB estimates.
China : Government spending on health and education
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Policy challenge—fiscal reform for
inclusive growth :
The greatest challenge arising from the new leaders’ reform agenda is
stepping up efforts to restructure the economy toward domestic demand
a...
nd making growth more inclusive. Against this background, the new leadership has announced a reform plan with three pillars: financial market
reform to liberalize interest rates and accelerate bond market developments,
fiscal reform to support economic restructuring and narrow the income
gap, and deregulation to support greater private sector participation in the
economy. Among the three, the fiscal component stands as the most crucial
and challenging reform to be addressed in the coming years.
In its transition toward a market-oriented economy, the PRC introduced only limited taxation, and central government transfers for education, health, housing, and pensions declined. A wide income gap
and low consumption resulted, constraining the enormous potential of
domestic demand as an engine of growth. In recent years, the government
has adopted a range of measures to reverse the trend. In particular,
social spending has increased. Even so, it remains low, with government
expenditure on education and health care amounting to only 5.5% of GDP
(Figure 3.9.12), less than half of the average of 12.5% allocated by countries
in the Organisation for Economic Co-operation and Development.
Moreover, reforms have focused on expanding benefit coverage rather than
revamping the benefits themselves.
Recent income tax changes have reduced the number of individual tax
payers to less than 3% of the population and their payments to 6% of fiscal
revenue. The narrow base leaves policy makers with no powerful tool with
which to improve income distribution. The direct income tax base can be broadened by shifting the informal sector into the formal economy,
strengthening tax administration, and curtailing tax evasion.
The regressive bias of the taxation system needs to be corrected. It would be more equitable to move away from the current emphasis on indirect taxation, which is highly regressive, toward a progressive tax
system that shifts the tax burden from low-income households to high
earners. Taxing capital gains and property would also help to improve income distribution. Property tax is a potentially significant source of stable tax revenue for local governments, allowing them to mitigate their heavy reliance on revenue from land sales and improve their provision of basic social services.
Source: CEIC Data Company (accessed 14 March 2013). - http://www.econdata.com/databases/ceic/ceic-china/
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