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M & D FORUM Research on Reasonable Criteria of China Macro Tax Burden YIN Shouxiang School of Economy, Shandong Institute of Business and Technology, Yantai, Shandong, 264005 [email protected] Abstract: The macro tax burden is the core content of the nation fiscal policy, and it is also closely related to the nation's economic growth and social stability. There are a number of factors should be considered when studying the reasonable tax level, we mainly focus on the two factors: economic growth and the public service. The empirical result shows that the relationship between our macro tax burden with economic growth is against with Keynesian theory for they are positively related with the improvement of the macro tax burden, our economy is growing rapidly that testifies Our macro tax burden level is not high. But our current fiscal revenue used for education, health care and for social security aspects is lack, the taxpayers pay taxes but not enjoy corresponding public products and services, and this is the basic reasons why the public feel the tax burden so heavy. Keywords: Macro tax burden, Rationalization, Economic growth, Public service 1 Introduction In China, the macro tax burden is an old topic, several scholars studied this question in 1990s.Since the 2003, Forbes list published "tax pain index" ranked China the third in the world , the macro tax burden problem again caused the government, scholars and people's attention. Because the researchers use different research caliber and the inconsistent standpoint and different perspective, the problem of tax burden high or low is inconsistent. In order to comprehend the macro tax burden on our reasonable level more deeply, the author here studies the problem from two angles: the first angle is the macro tax burden and economic growth, and the second angle is the relation between macro tax burden with China's public service provided. 2 Our Analysis of the Status of the Macro Tax Burden Tax burden is the core problem in taxation policy and system. On one hand, it affects the ability of countries concentrating how much money and the macro-control; on the other hand it also influences the tax burden level of the enterprise and residents. The macro tax burden refers to a country's overall tax burden level, international generally reflect it by the tax amount to the proportion of GDP of certain period. The government income form in our country is not standard, so government revenue sources in addition to tax revenue outside still have non-taxable income, non-budgetary income as well as outside system income. This income does not include in the budget system partly, and even not the financial disposal, but is the true burden for the taxpayers. At present the comparatively approved macro tax burden caliber in domestic have 3: One is the tax revenue/GDP, called small-bore macro tax burden, two is the fiscal revenue/GDP, called the medium caliber, and three is government revenue/GDP, called big caliber macro tax burden. China’s current situation macro tax burden as follows: 2.1 Tax revenue growth exceeds that of GDP Year 2001 Table 1 GDP growth, tax revenue growth and tax growth elasticity 2001~2009 Total revenue Tax revenue GDP (billion yuan) GDP growth Tax growth (billion yuan) growth elasticity 15301.38 21.62% 109655.17 281 8.30% 2.605 M & D FORUM 2002 17636.45 15.26% 120332.69 9.08% 1.681 2003 20017.31 13.50% 135822.76 10.03% 1.346 2004 24165.68 20.72% 159878.34 10.09% 2.054 2005 28778.54 19.09% 184937.37 11.31% 1.688 2006 34804.35 20.94% 216314.43 12.68% 1.651 2007 45621.97 31.08% 265810.31 14.16% 2.195 2008 54223.79 18.85% 314045.43 9.63% 1.958 2009 59521.59 9.77% 340506.87 9.11% 1.072 Note: The total GDP and taxation are all valuated by present price statistics. Source: "China statistical yearbook", the gross tax income does not include import VAT and consumption tax from imported products. 35.00% 30.00% 25.00% ht wo 20.00% rG 15.00% 10.00% 5.00% 0.00% 2001 2002 2003 2004 2005 Year Tax revenue growth 2006 2007 2008 2009 GDP growth Figure 1 Tax revenue growth and GDP growth 2001-2009 To investigate tax revenue growth speed, we can work at it from two perspectives. One is the historical probe of the tax revenues growth rate itself, and another is the compare of tax revenue growth and GDP growth rate. To examine the tax burden current situation, and look from the absolute value, Our tax revenue grew by nearly three times just nine years time from 2001 to 2009, grew from 15301.38 billion Yuan in 2001 to 59521.59 billion Yuan in 2009.From the relative amounts on look, according to the simple available calculation through table 1, the average growth rate of tax revenues is 18.98%, and the highest annual growth reaches 31.08% from 2001 to 2009 with a surprising growth. But the average GDP growth is 10.49% and it lessens eight percent than the growth of tax revenues. It can be say that in our country, the growth of tax revenue is super than the economic growth. 2.2 Tax elasticity coefficient is too big Tax elasticity essentially says the coordination problems of tax revenue growth and economic growth, it refers to the ration of tax revenue growth and economic growth. The formula is: tax elasticity coefficient = tax revenue growth/GDP growth rate. Tax elasticity coefficient calculation results have three: more than 1, less than 1 or equal to 1.It shows the three scenarios that tax revenue is growing at a faster or less or equal rate than the GDP growth. According to international practice, our tax elastic coefficient shall be less than 1 by estimate method in normal. Because our country takes the commodity tax as the main body of the tax structure primarily, the tax basis is the proportional rate by taking the commodity circulation as tax amount, commodity tax 282 M & D FORUM revenue increases synchronously or no more than GDP theoretically, therefore taxes elastic coefficient only is less than or equal to 1.Considering the reality, the government needs to ensure the steady growth in revenue and meet the needs of government spending, tax elastic coefficient should keep equal to or greater than 1 level. It can be seen from table 1 that tax revenues grew faster than GDP growth from 2001 to 2009 in fact, tax elasticity coefficient is far greater than 1, the highest is 2.605, that further corroborates the situation that the tax growth is super than economic growth. 2.3 Non-taxable income revenue proportion is higher Through the table 1 and table 2 data, we can see that except a lot of tax our current government collected and the tax average growth is18.98%,there still are a large amount of non-taxable income and non-budgetary income, and the amount of the system income outside without specific data. It also proves some scholars (Antifu, 2006) view that China's current small-bore macro tax burden is not high, but the tax burden is heavy from the medium caliber and large diameter. Table 2 Non-taxable income and non-budgetary income Year Fiscal revenue Tax revenue Non-taxable income Non-budgetary income Non-taxable and non-budgetary income total 2001 16386.04 15301.38 1084.66 4300 5384.66 2002 18903.64 17636.45 1267.19 4479 5746.19 2003 21715.25 20017.31 1697.94 4566.8 6264.74 2004 26396.47 24165.68 2230.79 4699.18 6929.97 2005 31649.29 28778.54 2870.75 5544.16 8414.91 2006 38760.2 34804.35 3955.85 6407.88 10363.73 2007 51321.78 45621.97 5699.81 6820.321 12520.13 2008 61330.35 54223.79 7106.56 6617.25 13723.81 2009 68518.3 59521.59 8996.71 —— 8996.71 Note: Fiscal revenue and total revenue on the basis of all press present price statistics, 2009 Non-budgetary income data losses. Data sources: The China statistical yearbook of 2010. 3 One of the Judgment Standards of Macro Tax Burden Rationality -- Economic Growth There are many reasonable standards to judge a national macro tax burden level, one of the standards is to see whether it adapts to economic growth. The traditional Keynesian view is that the effect of taxes on output multiplier is negative, the role of taxes on economy is in the opposite direction, that means tax hinders the economic development. Supply economist assumes that tax rate in certain limits can promote economic growth, but once more than this range, tax revenue and economic growth down with the tax rate rising, this is the famous Laffer curve revealed connotation. But there are also some conclusions that tax has little or no influence on economic with different data. For instance, Mendoza1 has studied 18 OECD countries found out that the influence of tax on economic growth was not significant or very weak. An economic professor Joei Slemrod at the University of Michigan in the United States also studied that there is no convincing data to suggest that higher tax 1 Mendoza Enrique G,Razin Assaf. Effective Tax Rate in Macroeconomics: Cross-country Estimates of Tax Rate on Factor Income and Consumption[J].Journal of Monetray Economics,1994(December):297-323. 283 M & D FORUM impacts the economy until now etc2. Here T represents small-bore macro tax burden, Y shows GDP (taking 1978 as the practical base).Establish economic model lnY=a+blnT. According to our country actual GDP and nominal macro tax burden 10 years from 2000 to 2009, we apply SPSS software for OLS regression. Year Table 3 2000 -2009 GDP and macro tax burden GDP index Nominal GDP Actual 1978=10 GDP deflator GDP 0 ( ) Units: (billion Yuan) Small-bore Total tax lnGDP tax burden income T(%) 12582 10.229 12.6811 lnT 2000 99214.6 759.95 3.582 27702 2001 109655 823.02 3.655 30001 15301 10.309 13.9541 2.63577 2002 120333 897.77 3.677 32726 17636 10.396 14.6564 2.68488 2003 135823 987.78 3.772 36007 20017 10.491 14.7378 2.69042 2004 159878 1087.4 4.033 39638 24166 10.588 15.115 2.71569 2005 184937 1210.4 4.192 44121 28779 10.695 15.5612 2.74478 2006 216314 1363.8 4.351 49714 34804 10.814 16.0897 2.77818 2007 265810 1557 4.684 56755 45622 10.946 17.1634 2.84278 2008 314045 1707 5.047 62223 54224 11.038 17.2662 2.84875 2009 340507 1862.5 5.015 67893 59522 11.126 Data sources: according to the “China statistical yearbook” data obtained by calculation. 17.4803 2.86107 Figure 2 Scatter plot chart of lnGDP and lnT Results: lnY=2.596+2.950lnT (0.711) (0.260) R2=0.942 S e=0.08013 F=128.925 The figures in brackets are standard error of corresponding parameters. 2 () Jiaochangfeng, The real relationship of tax and economic growth [J], Social observation, 2004 2 284 2.54011 M & D FORUM Judging from the regression results, the significant level of small-bore macro tax burden is low, r-squared figures is high and goodness-of-fit is better. The results show that our current small-bore macro tax burden and economic growth clash with the Keynesian view, the macro tax burden and economic growth are not reverse direction change relationship. Rising macro tax burden corresponds to China's economic growth accelerating; it is a positive correlation between them. It also shows that our current macro tax burden level is appropriate, and in the Laffer curve reasonable rate interval. With the improvement of tax rate, tax revenue and economy gradually grow. Here, we need to pay attention to the accuracy of the system outside data; the macro tax burden takes the small caliber as the tax burden. Therefore, this model also has the big defects and still need to try to improve later. 4 Another Macro Tax Burden Rationality Judgment Standard -- Public Service Macro tax burden reflects the reasonable degree of the government department distributes the national income. Public economics regards tax as the public product price of a citizen buying government provision; citizens exchange for the government provides public products, public service and public welfare by assigning their own interests. The macro tax burden is high or low, not only should consider the tax burden to taxpayers, the government itself how much tax levy, but also fully consider how much the government returns to the taxpayers, how much of the tax revenue truly is “taken from citizen and used in citizen”. Judging macro tax burden level needs to investigate whether the government income has made the national welfare increase. Many European countries’ tax burden is high than China, but taxpayers all enjoy the government high quality public product from birth to grave, can say that Europe is high taxes and high welfare. From our present situation, the higher macro tax burden level does not bring the high quality public products, instead that the macro tax burden level and the supply of public service level exist some asymmetry, our country public products and services provide deficiently at present. Our financial expenditure is inadequate and some of the people's livelihood support is weak. The people's livelihood includes education, health, social security, employment and housing etc, here three elements are analyzed. For the education attribute namely education exactly belongs to the public product or private product, the present science has not reach identical. Although education especially higher education does not possess complete competition and excludability, there's no doubt that education has the positive externality, this is the fact that does not dispute. As the public welfare undertaking, the purpose of education is not profit, but improving the quality of people in an all-round way which creates the most basic conditions for the sustainable development of society. Therefore, education belongs to the public service provision range. Similarly, public health and social security also belong to the government provide service and subsidies. 4.1 The financial education spending is inadequate Year Table 4 Education spending in table Education spending accounts Education spending (billion for the proportion of the total yuan) financial expenditure Education spending of GDP 2002 2644.98 11.99% 2.20% 2003 2937.34 11.92% 2.16% 2004 3365.94 11.82% 2.11% 2005 3974.83 11.72% 2.15% 2006 4780.41 11.83% 2.21% 285 M & D FORUM 2007 7122.32 14.31% 2.68% 2008 9010.21 14.40% 2.87% 2009 10437.54 13.68% 3.07% Source: Obtained according to the web of national statistics bureau. http://www.stats.gov.cn/tjsj/ndsj/ Education spending in the proportion of the total financial expenditure experiences a process from high to low then rise again 2002 ~ 2009, the lowest education spending in the proportion of the total financial expenditure drop to 11.72% in 2005.The level has the very big disparity with the world average, comparing with developing countries (Korea for 20.5% in 1997, Thailand for 22.44% in 2000) locates in low level3. Our education expenditure of GDP is the highest 3.07% in 2009, “The long-term plan of national education reform and development (2010-2020) "proposes to improve the nation's fiscal education expenditure of GDP and reach to 4% in 2012, but our country's education financial investment well below the expected level of 4% at present. 4.2 Finance to the health investment is not enough Year 2002 Table 5 China's medical health spending Health spending accounts for the Health spending (billion proportion of the total financial yuan) expenditure 635.04 2.880% Health spending of GDP 0.528% 2003 778.05 3.156% 0.573% 2004 854.64 3.000% 0.535% 2005 1036.81 3.056% 0.561% 2006 1320.23 3.266% 0.610% 2007 1989.96 3.997% 0.749% 2008 2757.04 4.405% 0.878% 2009 3994.19 5.235% 1.173% Source: Obtained according to the web of national statistics bureau. http://www.stats.gov.cn/tjsj/ndsj/ We can see through the above table that the absolute number or relative fiscal expenditure of China's public health cost have been trend to rise gradually, it accounts for the proportion of the total financial expenditure rises from 2.88% to 5.235%, the proportion of GDP by 0.528% rises to 1.173% from 2002 to 2009.But our country finance to the health investment is insufficient overall, the proportion of the total financial expenditure of health spending is lower than developing country’s, for instance Egypt is 3.31% in 1997 and Mexico is 4.22% in 1999.This data is far less than the developed countries at the same time (this data, the United States 20.5% in 2000, Germany for 18.89% in 1998). 4.3 Social security system is not sound Social security as a social safety net can ensure the residents basic life, medical and unemployment. The social security system is concerned with all the people's interests and the rights of the citizen, as one of the main issues and execution it should be focused on by the government. After years of development, the social security system of China has made some achievements. Social security system of rural social is basic sound but it is still in the stage of development at urban, the reform task is still very difficult in a manner of speaking. 3 TianXiamei, Reasonable level discussion on macro tax burden[J], modern trade industry, 2010 (8) 286 M & D FORUM The development of the social security system adapts to a certain phase of economic development, we shall establish the security system which adapts to the level of economic development of urban and rural social. To establish minimum life guarantee system in the conditional rural areas; concern on the endowment and doctor of the vulnerable groups and special groups; handle the relation of “Protect serious illness” and “protect the ailment "in the new rural cooperative medical, determine the direction of development of rural social security as soon as possible and take some incentive measures to increase farmers' income. 5 Conclusion In the backdrop of China's current resident income growth rate is well below economic growth and revenue growth, the House price and good price are high, not compulsory education fees raise yearly and every social security system is not yet perfect. The public should not only take taxes but also bear the fees; meanwhile they do not enjoy the corresponding public services and welfare level, which is the real cause of the public feeling of heavy tax burden. References [1]. Antifu SunYudong, China's tax burden and tax policy research [M], Chinese tax press, October 2006 first editions(in Chinese) [2]. Zhaoyingchun, Research on the Tax-Exceeding- Economy Growth in China [M], lixin accountant press, July 2009 first edition(in Chinese) [3]. TianXiamei, Reasonable level discussion on macro tax burden [J], modern trade industry, 2010 (8) (in Chinese) [4]. JiaoChangfeng, The real relationship of tax and economic growth [J] Social observation 2004 2 (in Chinese) [5]. ZhangWei, Thinking on macro tax burden and economic growth [J], journal of guangxi finance institute, 2007 (3) (in Chinese) [6]. Mendoza Enrique G, Razin Assaf. Effective Tax Rate in Macroeconomics: Cross-country Estimates of Tax Rate on Factor Income and Consumption [J].Journal of Monetary Economics, 1994 (December): 297-323 , 287 , ()