Transcript What is Total Quality Management?

Economic Growth, Tax Hikes
and China’s Future Road
to a Rechtsstaat
Weisen Li（韦森）
Professor in Economics
School of Economics,
Fudan University
School of Economics, Fudan University
Today we will discuss the following three
questions:



1, Economic Growth and Tax Hicks in China in
recent years
2. Economic Side-Effects of the Tax Hikes
3. The Statutory Taxation and the Construction of
the Constitutional Democracy in China
School of Economics, Fudan University
1. Economic Growth and Taxes Hicks
in China in recent years
School of Economics, Fudan University
Since 1978, China has embarked on its
economic and social reforms for more than
30 years. China’s reforms have been
incremental and evolutionary but exerted
some tremendous impacts on the
contemporary Chinese society. In economic
side, China’s 30 years of reform has
brought about a fast annual average GDP
growth rate of 9.8% since 1978, and 8.2% of
average growth of GDP per capita.
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Figure 1, China’s GDP and Growth Rate since 1978
300000.0
18
16
250000.0
14
200000.0
12
10
150000.0
8
100000.0
6
4
50000.0
2
GDP(100 million yuan)
Increase Rate(%)
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20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
0
19
80
19
78
0.0
Japan
Japan
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Figure 2, A Comparison of China’s GDP with Japan
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During the time of fast growth
of the Chinese economy, the
government’s taxation revenue
and the government’s total fiscal
revenue has grew even much
faster that has been nearly double
of GDP growth rate in most years
since 1994.
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Due to the continual tax hikes in recent years, the
Chinese government’s fiscal revenues has kept a steady high
rate of increase which is of almost double of China’s GDP
growth rate (see Figure 3, Figure 4 and Figure 5). For example,
in 1998, the total fiscal revenue of the Chinese government
was about 987.6 billion Yuan, but in 2006, it is 3873.1 billion
Yuan which is almost 4 times of 1998. Consequently, from
1998 to 2006, the proportion of the Government revenues in
GDP in China rose from 11.7 % to 18.4%. In 2007, both the
Chinese Government’s Tax revenue and the Government’s
fiscal Revenue increased 31.4% with 5100 billion Yuan in total.
In 2008, the tax revenues grew more than 23% further and
reach a new height of more than 6000 billions even if in the
second half of year the Chinese economy has sign of gradual
slow-down.
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Figure 3. Growth Rates of Government’s Fiscal
Revenue and GDP in China
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45000.00
30.0
40000.00
25.0
35000.00
30000.00
20.0
25000.00
15.0
20000.00
15000.00
10.0
10000.00
5.0
5000.00
0.00
0.0
1989
1990
1991
1992
1993
1994
财
1995
政
收
1996
1997
1998
入（亿元,按当年价格计算)
1999
2000
2001
2002
2003
2004
财政收入增长速度(%)
Figure 4. The Growth of Fiscal Revenue
of the Chinese Government
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2005
2006
Figure 5. Growth of the Chinese Government’s
Taxation Revenue in Recent Years
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As the a result of the fast growth of the
government’s tax revenues, China ranks the
third among the world's most heavily taxed
nations, according to the latest "Tax Misery
Index" chart released by Forbes. [1] China, with
an index of 152, was eight points below the
figure of 2005 which was ranked the second in
the world. In 2006, France and Belgium lead the
pack with 166.8 and 156.4 respectively on the 52
country list (See Figure 6).
[1] "Forbes Tax Misery Index", reflects how much of your
paycheck you will take home after the government takes
its cut.
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Figure 6．Forbes Tax Misery Index
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2. Economic Side-Effects
of the Tax Hikes
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The possible three kinds of economic sideeffects of tax hikes:

Firstly, a tax hike and a new tax levy will reduce the
wealthy of households and enterprises and thus hold
back investment of firms and consumption spending
of households. According to an empirical study of
the World Bank on the relationships between
taxation and economic growth which was conducted
several years ago, when the macro-tax burden at a
level of 10.3-30.9%, 1% increment of tax levy will
reduce domestic investment of 0.66% and thus slow
down the growth rate of GDP by 0.36%.
School of Economics, Fudan University
The World Bank experts give three explanations:
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(1) the tax hike of enterprises’ returns will
reduce the profitability of enterprises and
thus damage their competitiveness,
particularly in a international arena;
(2) any tax hike of individual income will
reduce the marginal return of labor and thus
constrain the supply of labor;
(3) hikes of the value-added taxes and sale
taxes will check the household consumption.
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Figure 7，Government Fiscal Revenue and disposable
incomes of urban and Rural dwellers
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Due to the factor that the Government’s tax
and fiscal revenue have been keeping a very fast
rate of growth, household consumption
has
dropped dramatically in recent year. For example,
from 1995 to 2007, government revenue grew 16%
on average (adjusted for inflation), while urban
disposable income just increased 8% and rural net
income increased 6.2%. Consequently, in 2007,
China’s ultimate consumption rate is 36% down
from 55.4% in 2003. In sharp contrast, the world
average is 77%. This phenomenon was called
“sluggish individual and household consumption”
by some Chinese economists.
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Secondly, from a point of views of
microeconomics or say welfare economics,
some economists, especially neoclassical
economists, argue that all taxation will create
market distortion and result in economic
inefficiency. For example, an introduction of
a new product tax, a resource tax, or a hike of
the current tax generally speaking will reduce
market demand or supply and thus results in
some “deadweight loss”.
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Thirdly, In addition to the negative
economic effects of tax hikes in the
current arrangement of China’s political
system, another serious fact should be
paid more attention. It is where and how
the government spend the huge tax
revenue collected. The huge government
fiscal
revenue
and
the
lack
of
transparency
of
the
government’s
spending have led to government officials’
corruption and inequality of income
distribution.
School of Economics, Fudan University
Government officials’ corruption: Figures from Mr. Jia
Chunwang, the former Procurator-General of China's
Supreme People's Procuratorate.
1. In 2004, a total of 18,000 government officials were charged
corruption, among those 2,900 are the high-class officials of
above county-governors level.
2. In 2005, a total of 1,932 above-county-governor-levelofficials were charged corruption, among those provincial
high officials 178, and 6 of minister-level high officials.
3. In 2006, a total of 2736 above-county-governor-levelofficials were charged corruption, among those provincial
high officials 202, and another 6 of minister-level high
officials.
4. From 2002 to 2007, total of 13,929 county-governor-levelofficials were charged corruption, among those provincial
high officials 930, and 35 are minister-level high officials.
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Income inequality:
1. According to official figure, China’s Gini Coefficient is currently 0.47
which is closing to the average level of Latin American countries.
2. According to a survey in the central party school of CCP, by the early of
2006, among 3220 richest families with assets above 100 millions Yuan,
2932, i.e. more than 90%, come from high class government officials
and their children.
2. According to figures from Asian Developing Bank, the average income
of top 20 percent families is 11.37 times of that of lowest families in
China which is much higher than 5.52 times of India and Indonesia and
9.11 times of Philippine.
3. According to a study from the World Bank, 0.4% of population take
70% of total social wealth in China and in comparison, in USA, 5% of
population take 60% of wealth and thus the study reaches a conclusion:
China ranks No. One in wealth concentration in the world.
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Above factors have result in some social unrests in China recently,
particularly in 2008.
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3. The Statutory Taxation and
the Construction of the Constitutional
Democracy in China
School of Economics, Fudan University
From a point of views of political theory and the theory of
constitutional law, there are some more serious questions :
Because taxes are a kind of compulsory
levies and are unrequited and in nature
they
are
infringements
of
the
government’s
public
power
upon
taxpayers’ private rights, to protect the
taxpayers from the arbitrary tax levies of
the sovereign and the government has
becoming a basic demand and core value
of constitutional democracy movement
since the Magna Carta in 1215.
School of Economics, Fudan University
In a modern society, protection of the
rights and entitlements of taxpayers
through tax laws and legal process has
become a basic and core value of the
modern constitutional democratic polity
and thus the statutory taxation has
become the common practices in a state
with constitutional democracy. According
to the theory of the statutory taxation, in
order to prevent the government to abuse
power, it is designed to limit power by
power.
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Hence in most democratic countries,
it is designed that the government’s
decisions-right to collect taxes must be
granted and approved by the Parliament.
Only in such an arrangement, people can
believe that their private rights cannot be
arbitrarily infringed by the government. In
summary,
the
limited
ability
of
government’s collection of tax subjected
to approval of the parliament is the basic
content of the statutory taxation.
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According to the principle of the statutory
taxation, in most democratic countries, if the
government wants to introduce a new tax, or
raise a tax levy, it is often not a easy task. It
usually takes time to go through the parliament’s
debate and often encounter taxpayers’ resistant,
protests even demonstrations on the street. In
many countries with constitutional democracy,
for instance in Canada, New Zealand and
Australia, it often happened that one tax (for
example, the GST in Canada, NZ and Australia) could
not be levied through a few of governments’
propositions and long time of hot debates in the
parliament.
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However, in the current arrangement of
China’s political system, it is not such a story.
Because most Chinese people have no idea of
the statutory taxation, while the legislative
power of tax laws was entrusted to the
government’s administrative body, this actually
always gives a green light to the CMF and the
SAT to arbitrarily introduce a new tax or
arbitrarily hike taxes without debate and
stipulation of the Chinese People Congress.
Under such a political arrangement, the CMF and
the SAT can actually in anytime, anywhere and
randomly introduce a new tax levy or hike an
existing tax with any consultations of the CPC.
School of Economics, Fudan University
The present course of actions of the
Chinese Ministry of Finance (CMF) and
the State Administration of Taxation (SAT)
obviously are against the principle of the
statutory
taxation
in
the
modern
constitutional democracy thus made the
taxpayers can do nothing to protect
themselves from the “grabbing-hands” of
the government. It also clearly show the
fact that China has long way to go
towards a constitutional democracy.
School of Economics, Fudan University
In conclusion, to clearly clarify the
legislative power of tax law, to let the
government’s tax revenues and where and
how the tax revenues spend to be
discussed and debated and finally
stipulated by the Chinese Peoples’
Congress through some formal legislative
processes, and to protect the taxpayers’
basic rights from the government’s
arbitrary “grabbing-hands”, are some
urgent tasks of the construction of the
constitutional democracy in China.
School of Economics, Fudan University
Thanks！
School of Economics, Fudan University