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Interview: Overcoming Income Inequality
Summary:Vice-Chairman of the China Democratic League Suo Lisheng describes the roots of income inequality and what’s needed to adequately address it. He says improvements need to be made in taxation, wages, social security and government finance.



By Jiang Yunzhang (降蕴彰)

Issue 595, Nov 19, 2012
News, page 4
Translated by Zhu Na
Original article: [Chinese]

The Economic Observer interviewed Suo Lisheng (索丽生), member of National People’s Congress Standing Committee and Vice-Chairman of the Central Committee of the China Democratic League about income distribution reform.

The Economic Observer: What do you think about the current problems facing income distribution reform?

Song Lisheng: The imbalance of income distribution and the continually widening wealth gap are hot issues and the current focus of society. I think to solve this problem, the seriousness and complexity must be fully acknowledged. The seriousness of the country’s income distribution reform problem lies in the relative decrease in the ratio of worker compensation from primary distribution [the original sale of stocks or bonds] compared to the continuous rapid growth of the national economy and the fast expansion of wealth accumulation.

The situation is still deteriorating. This has resulted in the public’s low perception of social fairness and the continuous spread of discontent. This has triggered various social contradictions and even mass incidents. The serious imbalance of income distribution also directly impacts the consumption structure and level of national income, which severally restricts the transformation of the economic development mode.

It also should be noted that in recent years, “three public consumptions” [official banquets, cars and overseas trips], corruption, the loss of state assets, monopolies of state-owned enterprises, the formation of special interest groups and other issues have also become the focus of public discontent. This has further deepened the public’s feeling of an imbalance in income distribution.

Therefore we can say that the income distribution problem stems from people’s livelihood and economic factors; but actually, it’s beyond economics. It’s intertwined with social and political problems that affect one another.

The EO: Where does the complexity of income distribution reform mainly lie?

Suo: The complexity of the issue lies in that the serious imbalance of income distribution wasn’t built in a day or caused by a single factor. It’s directly related to the government’s development concept, the traditional system and other macroeconomic factors.

For example, for a long time local governments have overemphasized GDP growth and ignored the reasonable social distribution of that wealth. The level of the economic structure and the overall quality of the labor force are low, making it difficult to raise workers’ wages. Administrative monopolies still exist, directly impacting the income difference between industries. There are barriers that the household registration system (hukou) brings which result in a growing gap between urban and rural areas. Inequality in the labor system excludes migrant workers from many benefits, resulting in income inequality among different workers. Weaknesses in fiscal redistribution, social security and tax policy have also curbed correction mechanisms for unequally distributed wealth.

The EO: The Central Committee of the China Democratic League has put forward proposals for improving income distribution and social security mechanisms many times. What are the contents of these proposals?

To put it simply, there are main five aspects to our suggestions for improving income distribution mechanisms: First, making efforts in economic, political and social construction in all areas. Second, focusing on both “making a bigger pie” and “making a fair distribution of that pie.” Third, deepening systematic reforms of state-owned enterprises, household registration and social security. Fourth, working hard to adjust the three major macroeconomic policies of government finance, taxation and social security. And finally, working on the five areas of employment quality, minimum wage, social insurance, worker’s welfare and wage negotiation. In this way we hope to change the situation of low pay for workers and the imbalance of primary distribution.

The EO: How do you think the macroeconomic policies of government finance, taxation and social security should play an adjustment role in redistribution?

Suo: In terms of government finance, we propose to double investment in public resources related to urban and rural residents’ income growth and social security development. We also propose setting the growth targets for people’s livelihood and welfare higher than those for fiscal revenue growth. We should try to achieve investment here that accounts for 30 percent of fiscal expenditure by 2020.

In terms of adjusting tax policy, there are four suggestions: One is to promote the transition of personal income tax to a family tax while further implementing preferential tax policies for charitable donations. The second is to adjust corporate tax policy. While optimizing the tax code and structure, we should implement preferential tax policies for low-profit industries, small and medium-sized enterprises and labor-intensive enterprises. The third is to improve the resource tax policy. The fourth is to adjust the tax ratio and introduce more tax codes. We should choose the right time to introduce a new tax code and adjust the income of high-income groups through things like property and consumption taxes.

We also recommend improving the social security system. Specifically, accelerate the development of rural residents’ and labor workers’ pension insurance. Meanwhile, gradually increase the level of social security and meet the poverty line that matches international standards by 2020. Also, ensure that social security benefits of urban and rural residents keep up with economic growth and the level of inflation. Finally, vigorously develop all social welfare for women, children, the elderly and the disabled. 

The EO: What recommendations does the Central Committee of the China Democratic League have regarding wage reform?

Suo: We recommend improving the minimum wage system; specifically, to raise the monthly minimum wage to a level equivalent to 40 to 50 percent of the local average wage.

We also recommend further improvement of the wage negotiation mechanism between the government, employers and employees to actively promote collective negotiation of salaries.

(The translation of this interview has been condensed from its original version)


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