Tax Reforms in Urbanization
It is unquestionable that urbanization is the most important topic in current China. Generally speaking, the so-called urbanization means a large amount of rural population enter the urban life from the countryside. At present, the percentage of urban population is about 51%, if the goal of reaching 60% is going to be realized in 2020, the first problem encountered is, how to raise the money for providing public services for so many people?
China’s Development Report 2010: The Strategy of Promoting Human Development for China’s New Type Urbanization issued by China Development Research Foundation in 2010 pointed out that the average cost for China’s current citizenization of migrant workers is around 100,000 yuan. For local governments, before the country has not abolished the household register policy in a unified way, the local governments have no stimuli to provide public services for the non-registered permanent residence population. Under the current fiscal system, with more and more outsiders flooding into cities, there is not much tax revenue to collect from them, so such immigrants only increase the burden of the local place. However, the theories of economics and the past facts have proven that the prosperity and development of a city have positive correlation with immigrants.
At the same time, many urban registered residents are more and more against the flooding in of non-registered residents——in their views, the flooding in of this part of population is for “robbing” the good urban public resources. Just because of this reason, with the speeding up of the urbanization process, the contradiction between urban registered residents and non-registered residents has become increasingly fierce. The event of a Shanghai girl Zhan Haite is one of the typical cases.
In the past, when we discussed the reason for this problem, we always paid attention to the factor of household registration system, so the academic circles always only said that such system should be abolished -- because governments provide public service based on the number of registered population currently. But, after the abolishment of the household registration system, a very realistic problem will arise: though there are no institutional hurdles for population mobility, there is limited local financial revenue, how to provide public services for so many people? Therefore, we need to reform the tax system to promote China’s urbanization.
Through the reform of tax-sharing system in 1994, the percentage of tax revenue of local governments that occupy the whole fiscal revenue has dropped: the major part of income tax and the value-added tax have belonged to the central government. Fortunately, the prosperous development of the real estate market after the housing system reform in 1998 has compensated the unbalance in the percentage of tax revenue for local governments, thereby it has become the best financial resources for the public expenditures of local governments——in many cities, the land-transferring fees can occupy more than 50% of the fiscal revenues. In the arrangement of such a tax system, the local governments have the impulse for inviting investments, the impulse for selling lands and building cities, but they do not welcome more people to settle in their cities——because viewing from instinct, the settlement of more residents means more burdens for cities, and this is the most important reason for the phenomenon that the current “population urbanization” is far behind “land urbanization”.
In my view, the situation of the current “only wanting lands but not people” can be completely relieved by levying the property taxes. If we say that the land-transferring fees are one-time incremental income, then the property taxes are the long-term inventory incomes. An area may not have land-transferring fees, but it’s impossible that there will be no property taxes —— as long as there are people living in houses in the area, then stable income can be gained, and thus it can be helpful for the financing of public services.
More importantly, the increase of the value of the real estate is in direct proportion to the amount of population to a certain extent. Supposing that other conditions are unchanged, then the increase of population will bring in the increase of the value of the real estate, and the increase of housing estates will give a feedback to tax revenues. This is also the main reason that the local public expenditures in many countries mainly rely on property taxes.
But when we discuss China’s property taxes, we will encounter another problem: the government has collected a great amount of land-transferring fees, and if it still collects property taxes in the holding link, is it proper? Of course it is a problem. Therefore we may put forward such a premise that the collecting of property taxes should synchronize with the reform of land market: we should abolish the state-owned monopoly in the primary land market and cancel the land-transferring fees, and the land owners should gain this part of profits.
The advantage of this reform is that property taxes and governmental motivation are compatible: the government no longer takes great pains in “land acquisition” and creates new troubles for the purpose of increasing fiscal revenues. At the same time the inventory property taxes can also provide stable pubic fiscal incomes for the newly increased urban residents. And the collection at present also has an advantage that the real estate market can be adjusted quickly.
Originally published on Southern Metropolis Daily | 2013-3-22
