Move to meet funding shortfall caught up in departmental disputes on how cash will be used

Beijing's plan to introduce a social security tax to meet a huge funding shortfall has sparked debate in official circles over the tax's role.

Finance Minister Xiang Huaicheng was quoted by the official Business Weekly yesterday as saying his ministry was working with other government departments to formulate the new tax, but warned that there were many obstacles ahead. He pledged that social security funding would be included in financial reforms over the next few years.

While Mr Xiang did not elaborate on official discussions about the tax, experts said there were disagreements about whether it should replace existing fund-collection mechanisms or supplement them, said Business Weekly.

There were also disputes over the use of the funds raised: whether they should be limited to areas such as medical care, unemployment compensation and old-age pensions, or extended to natural disaster relief, it said.

Meanwhile, a government think-tank has suggested the Government could raise up to 220 billion yuan (HK$201 billion) to finance social security by selling state shares in listed companies.

According to a report by the Office for Restructuring the Economic System, under the State Council, the state would first reduce the proportion of shares it owns in listed state enterprises from 70 per cent to 51 per cent. If that was successful, it would reduce it to 30 per cent. Although there has been much debate on this issue, state shares are currently not traded on the markets.