Beijing 'to cut taxes' in boost to spending

PUBLISHED : Monday, 24 November, 2008, 12:00am
UPDATED : Monday, 24 November, 2008, 12:00am

National Development and Reform Commission working on fresh stimulus package

The central government is poised to announce a raft of policies to boost consumption and head off a looming economic slowdown.

The National Development and Reform Commission was working on a stimulus package that would raise the taxable income threshold and increase salaries for state workers, the mainland-based Economic Observer quoted unidentified sources as saying. It was not clear how much the package would cost, but it also includes reductions in the fees for several public services, including telecommunications and parking fees.

The report quoted an official from the NDRC, the mainland's top economic planning agency, as saying the package comprised entirely new measures from ones Beijing has already announced. It had been revised several times by the State Council, and details could be made public at a top Communist Party economic work meeting as early as the beginning of next month.

The package comes two weeks after Beijing announced 4 trillion yuan (HK$4.5 trillion) in new spending over the next two years to counter the sharp economic slowdown amid the global financial crisis. A large portion of the spending will go to big infrastructure projects in railways, agriculture and housing development.

Official statistics showed that industrial output growth slowed to 8.2 per cent last month, the lowest level in seven years. Fiscal revenue dropped 0.3 per cent from October last year, the first decline in 12 years.

Although the central government has said it is committed to improving social welfare through offering better health care and giving people higher incomes, it has stopped short of offering details.

Despite its economic development over the past three decades, China is lagging behind other developing countries such as India and Thailand in social welfare spending. The central government has been allocating about 11 per cent of its total fiscal spending to social welfare programmes in recent years, far below the level of 30 per cent to 50 per cent for many developed countries.

Due to a lack of social security and rising living costs, mainlanders have been notorious savers because they can be suddenly faced with large bills for expensive medical services and education.

The new stimulus initiative will also raise the subsistence allowance for the poor and the housing allowance to give more people access to the housing market.

However, Tang Xiujuan , an associate professor from Guangzhou University, said the draft package would have a limited effect on boosting consumption by lowincome families and those working in the private sector.

Professor Tang noted that groups including civil servants and those working at some state-owned companies would stand to benefit from the package.

'But for many others, it will come down to the nature of the places they work at or how much money their company makes to dictate if they can have a pay rise or more housing allowance,' she added.

Professor Tang said the government should work out a more specific set of policies that targeted each group of people to boost overall consumption.

Other analysts said the package would go some way to cutting the country's dependence on the world market for growth, but worried it would further strain the country's fiscal outlook, which has been taking a beating from falling exports.