Thursday, September 01, 2011

Why cutting income tax does not mean much - Arthur Kroeber

China intend to cut income tax for 60 million people, and our economic analyst Arthur Kroeber finds himself - yet again - trying to explain to Western media, why this impressive looking move actually does not mean that much. In the CSM:
Raising the income tax threshold will cost the government 160 billion RMB ($25 billion) in lost revenue, according to the Finance Ministry, but this is “no big deal” for Chinese public finances, according to Arthur Kroeber, head of the Beijing-based Dragonomics economic consultancy. “Fundamentally, China’s fiscal conditions are very strong”, Mr. Kroeber says, pointing to government estimates of a budget deficit below 2 percent this year... Household income has been falling as a share of GDP, relative to corporate and government revenues, for several years, but the new tax breaks are unlikely to reverse that trend because income tax plays such a minor role in China’s economy. “If the government wants to redistribute income from the corporate to the household sector, tax policy is not going to do the trick,” warns Kroeber.
More in the CSM Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.
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