AI-translated article with transliterated names. Read original Chinese article here.
With China’s pension system facing questions over fairness and funding pressures, senior financial official Guo Shuqing has called for work on inheritance and gift tax legislation to begin as soon as possible, aiming to help fund pensions by raising taxes on a small group of high earners.
An article by Guo, former Communist Party secretary of China’s central bank and former chairman of the China Banking and Insurance Regulatory Commission, sparked discussion this week after several Chinese media outlets republished it.
Titled “Building a Better and More Sustainable Social Security System”, it appeared in September in the official academic journal Social Security Review. Guo, who has stepped back from front-line leadership, is now a member of the Standing Committee of China’s National People’s Congress and vice-chairman of its Financial and Economic Affairs Committee.
Guo wrote that various studies predict expenditure in China’s basic pension insurance scheme for employees will exceed revenue within the next 20 years. The shortfall will continue to widen as population ageing accelerates.
He also noted that pensions for elderly urban and rural residents, averaging about 260 yuan (S$50) a month per person, fall far short of meeting basic living needs. Farmers had contributed enormously to China’s wealth accumulation, mainly through agricultural taxes, compulsory labour, the price disparity between industrial and agricultural goods, and the migrant worker system.
Taking these factors into account and significantly raising farmers’ basic pensions would create another funding gap.
He said, “Although we face severe challenges, there are more solutions than difficulties. We should have full confidence in our ability to prevent and address the risks of a shortfall in pension funds.”
Guo argued that planning should begin early to develop new sources of fiscal and tax revenue. Income tax collection and administration should fully reflect the principle of taxation according to ability to pay, ensuring that those with higher incomes pay more, while those with lower incomes pay less or no tax.
He said, “We should confront the issue of many entrepreneurs not drawing salaries and not paying personal income tax. In principle, whether they draw a salary, and how much they receive, are not matters for the government to regulate. The key is that companies’ production and operating costs must be genuine and compliant with regulations. Household living expenses must not be reimbursed by companies.”
Guo also called for work on inheritance and gift tax legislation to begin as soon as possible, alongside improvements to consumption tax and other taxes. “Tax increases in these areas would affect only a small group of high earners, and some or all of the additional revenue could be explicitly earmarked for basic pension subsidies.”
He also noted that China’s state-owned enterprises have net assets of about 140 trillion yuan. Increasing transfers of state-owned capital to bolster social security funds would help strengthen the long-term pension funding mechanism and moderately diversify ownership of state-owned enterprises.
Guo also cautioned that social security provision should be commensurate with the level of economic development. “We must focus on sustainability, learn deeply from the debt crises triggered by excessive welfare provision in some countries, and avoid falling into a ‘populist’ quagmire.”
This is an AI-translated article and some names may be transliterated. The original Chinese text remains authoritative, and SPH Media is not responsible for translation errors.
