Do You Know Where the Huge Revenues in China’s Taxes Go? Take a Wild Guess

Half of China’s taxes are used to support the government. (Stephen Finn/123RF)
Half of China’s taxes are used to support the government. (Stephen Finn/123RF)

China’s taxes—they probably mostly go to pensions, education, and health care, right? Nope. Try again.

Professor Wei Sen from China’s Fudan University recently wrote in a report that half of China’s taxes are used to support the government.

Since the implementation of tax reform in 1994, China’s fiscal revenue (money for the government) growth has been almost twice the Gross Domestic Product (GDP) growth every year. In 2013, the national net income was more than 11 trillion yuan, more than 8,153 yuan per capita.

Such an astronomical amount of money—where did it go? An economy expert, Professor Xu Dianqing from the University of Western Ontario in Canada, said that compared with other countries in the world, China has a big government in an economic sense. It takes in too much and spends too much; in addition, much of the revenue has not gone where it should have.

For example, China’s investment in education versus its GDP ranks 120th in the world, and 140th in medical costs, plus there is a severe shortage of pension funds. Generally speaking, a properly functional national pension system should use up more than 50 percent of GDP. China’s pension system should have more than 25 trillion yuan, according its GDP of 50 trillion yuan. Unfortunately, it has been a great effort just to get China’s pension system to reach 3 trillion yuan.

Former Premier Zhu Rongji said in 2000 that if no measures were taken, there would be two outcomes for the current pension system in China; one would be “no money,” resulting in the government acting in bad faith, and the other would be hyperinflation.

Chinese official media have reported that China’s education expenditure was 2.6 percent of GDP, half the international average, while healthcare spending is only at about 4 percent. In the World Health Organization medical fairness list, China ranked fourth from the bottom worldwide.

china's taxes

A lot of money concentrated in the hands of the government results in wasteful spending, and too little money for the people’s livelihood. (Ed Lemery Ed Lemery/123RF)

Wei also said in his report that the cost of medical education in China is only 3.8 percent of China’s GDP, but 23.3 percent in Japan. Such a huge amount of tax money going to the Chinese government, and yet it has a huge amount of debts and deficits at the same time.

Professor Zheng Zhuyuan, a Chinese economy expert from Indiana State University, explained it this way, “First, there is overproduction and waste in areas such as steel and cement; second, you have official’s free spending, banquets, and traveling; and third is unbelievable corruption.”

Wei pointed out that administrative expenses for the Chinese government were as high as 25.6 per cent of its GDP in 2006.

He suggested that the Chinese government should reduce taxes and return wealth to the people.

A lot of money concentrated in the hands of the government results in wasteful spending, and too little money for the people’s livelihood. Since tax reform will interfere with Chinese interest groups, tax reform in China is still a question mark.

 

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