Time to get serious about income reform
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PO: You mentioned the triangular relations between the public sector, private sector, and individuals. How can the government improve the fairness of redistribution between those three?
Su: Almost all existing evidence confirms that ordinary people are receiving an increasingly lower portion of GDP.Therefore, there should be a U-turn in policy.
A much more debatable topic is how to distribute between the government and firms. I think we must stick to the policy "less tax but more transfer." It means the government should charge less tax on small businesses to boost employment.
Small businesses usually create more jobs but our taxation often has a greater impact on them than on the industrial giants. Meanwhile, the transfer of resources from State-owned enterprise (SOEs) to the government is vital. This can financially contribute to public funds without damaging economic efficiency.
As for the relations between firms and employees, clearly in recent years capital shares have grown much faster than labor returns. It makes it even harder for people to benefit from the economic achievement.
What the government can do, directly, is implement fiscal reforms on taxation. Apart from the "less tax but more transfer" policy, the distribution of tax revenues between the central government and local governments also needs an overhaul.
The inconsistency between the local government's limited share of total government revenue and its indefinite mandatory expenditure often baffles many local governments which decide to stimulate the local economy through spending. They resort to leasing land, which is lucrative and not subject to the scrutiny of the people's congresses. The fiscal compulsion to exploit land leasing irrevocably bind the government with the local land market, and creates systematic bubbles whose bursts may harm fiscal stability.
To disentangle the situation, policymakers need to find a way to clarify the different fiscal responsibilities between the central and local governments and make a fair distribution.
PO: The Proposal also envisioned a further reform of the salaries of civil servants and employees in public sectors. What is your comment on it?
Su: The wages of civil servants and other public sector employees are an important part of the economic structure.
Given the ceaseless labor flows between the public sector and the private sector, wages in the public sector may compete with and affect wages in the private sector. That's why policy should focus on both sides of the coin.
The reform of civil servants' payment may try to resolve the following issues. One priority is to reform the abnormal makeup of civil service salaries. The basic salaries, which are subject to stringent fiscal regulation, only account for an insignificant part of civil service incomes. Generous remunerations and bonuses provide the major source of income for many civil servants. This is a fiscal aberration.
The reforms should also mitigate the disparity in civil service incomes between different regions. One way is to establish a system to enable the central government to directly subsidize some civil servants to mitigate the income disparity.
We need also to "de-officialize the salary system." Put in another way, civil servants' payment should depend on their performance and seniority, rather than solely on the job title.
