The draft outline of the 14th Five-Year Plan and the 2035 Vision proposes to "implement the action plan to expand the middle-income group", "improve the redistribution mechanism", and "adhere to the basic synchronization between the growth of residents' income and economic growth". "adhere to the basic synchronization of the growth of residents' income and economic growth", all aspects are closely related to the protection of people's livelihood. In this regard, Bai Chong'en, a member of the National Committee of the Chinese People's Political Consultative Conference, Dean of Tsinghua University School of Economics and Management and academic member of CIDEG, was interviewed by Xinhua to explain the relevant issues.

Disposable income growth must be multi-point efforts

Xinhua: The draft outline of the plan calls for "adhering to the basic synchronization of the growth of residents' income and economic growth, and the basic synchronization of the increase of labor remuneration and labor productivity". What are the necessary conditions and effective ways to promote the achievement of such a goal?

Bai Chong'en: The basic synchronization of disposable income and economic growth, and the basic synchronization of labor compensation and labor productivity improvement are closely related to each other.

First of all, the most important component of the disposable income of the residents is labor compensation.

There are three factors that affect the ability of labor compensation to keep up with labor productivity growth:

One is the industry structure. The share of labor compensation in total income varies from industry to industry, and in recent years, the service sector has accounted for an increasing share of GDP, which is a favorable factor for raising the share of labor compensation.

The second is market competition. If there is not enough competition, some monopolies will obtain higher profits, which makes the share of labor compensation in total income lower, and the growth rate of labor compensation and labor productivity may not be the same.

Third, employment policy. If more jobs can be created for low and middle-income people, especially through some measures to increase government spending and thus create more jobs, it will be helpful to increase the growth rate of labor compensation. Of course, such measures can also pose problems if the magnitude is too large. For example, traditional infrastructure that is not invested efficiently can lead to excessive accumulation of debt and cause local government debt problems. So the relationship between government-led investment and debt, and the balance between job creation and debt, is something that needs special consideration.

The disposable income of the population, in addition to increasing the rate of growth of workers' compensation, is also affected by redistribution mechanisms and policies, especially in the area of social security. If we can make better use of the regulation of transfer payments and collect less from the residents, it will be conducive to increasing the disposable income of the residents. If we can have more financial resources to support social security, the disposable income of the residents will also grow faster. We have taken a lot of measures in this regard, for example, the annual financial investment in pension insurance in China is relatively large. In addition, we also allocate state-owned assets to support social security. All these measures are very important to raise the disposable income of the residents.

Finally, in addition to the statistical disposable income of the residents, we also need to look at the substantive disposable income of the residents. If we can reduce the burden of some residents' expenditures, such as in the areas of subsidized housing and preschool education, then the residents' purchasing power in other areas will increase.

The key to expanding the middle-income group is to provide high-quality employment

Xinhua: The draft outline of the plan mentions "implementing the action plan to expand the middle-income group" and "improving the redistribution mechanism". What are the next steps of these two major deployments and what are their respective policy focus points?

Bai Chong'en: To expand the middle-income group, the key is to provide more people with higher-quality employment and higher income through higher-quality employment, which is the fundamental solution. There are three points in this:

One is to create more jobs. Most of this is actually determined by the market. There are influences that policy can play, such as infrastructure investment, but they shouldn't be mainstream. The main thing is to see how the market forms better job opportunities.

The second is to improve the skill level of the workforce. If more workers have the skills of the market demand, there will be more job opportunities. Therefore, further efforts should be made to optimize education and training to improve the skills of workers.

Third, better matching of skills and employment. There are many people with good skills and demand from enterprises, but if the market mechanism does not operate well enough to match supply and demand, it will not create effective high-quality employment.

In terms of redistribution, in addition to providing more public services for middle and lower-income people and reducing their burden, some fiscal measures can also help improve income distribution, although it is more difficult. The question is how to design a tax system that can create an effective income distribution effect.

For example, personal income tax is one of the main taxes that can regulate income distribution. The highest marginal rate of our personal income tax is 45%, and further increases in marginal tax rates are not conducive to innovation; we even need to lower marginal tax rates so that more innovative talents can receive higher returns.

In the long run, we need to consider property-related taxes. The uneven distribution of property is largely related to differences in home ownership.

This is a very difficult process and needs to consider designing a more reasonable property tax that does not affect the average citizen (62.320, -0.51, -0.81%) too much, but allows investors with more property to contribute more in terms of taxes, which could be another measure that could be taken to regulate income distribution.