New fiscal priority
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Premier Wen Jiabao's announcement that the State Council will discuss a plan to raise the threshold of personal income tax was welcome news to those who followed his online chat with the public on Sunday.
But it was also good news to domestic consumers, especially those from middle and low-income families. Wen's remarks reassured them that policymakers are beginning to tilt fiscal expenditure more in their favor.
Since the proposal will be delivered to the National People's Congress Standing Committee for review, we strongly urge the country's top legislature to endorse it.
More importantly, we also urge lawmakers to take bold actions to facilitate and oversee a thorough fiscal overhaul that attaches more priority to boosting domestic consumption and raising people's living standards.
In 2008, the tax starting point was raised to a monthly income of 2,000 yuan ($304), when the average residents' income in urban areas was 1,315 yuan per month.
Nowadays, the urban average income level has risen to 1,592 yuan per month, according to the 2010 statistical communiqu that the National Bureau of Statistics released on Monday.
In the absence of an automatic adjustment, the government should raise the threshold proportionately just to maintain the previous level of tax burden, not to mention to reduce it.
Besides, the country's growing fiscal revenue has made such an income tax cut affordable.
The 2010 statistical communiqu also showed that the country's total fiscal revenue increased by 21.3 percent year-on-year to 8.3 trillion yuan ($1.26 trillion) last year.
The growth in public revenue far outpaced both the 10.9 percent rise in rural incomes and the 7.8 percent rise in urban incomes.
Top legislators can surely avail themselves of these justifications to weigh the merits of the proposal that Premier Wen has promised to put forward.
Yet, the more demanding task for them is to decide if the steps that the government vows to take will be enough to engineer the desired transformation of the country's development model toward consumer-led growth.
To arrest and reverse the decline of labor income as a share of gross domestic product compared to that of corporate profits and fiscal revenues is a must if the Chinese economy is to shift away from investment and exports for growth.
A sweeping income tax cut is only a very small step toward fostering a large domestic consumer group with adequate purchasing power.
However, Chinese lawmakers and policymakers can together make it a starting point for resetting the country's fiscal priorities in line with its urgent need for more consumption-led growth.
