The dilemma of more taxes for better welfare

Public social spending as a proportion of GDP in China today is low compared to Japan and very low compared to developed market economies in the West. As such, social expenditures are very likely to increase, and this should not be seen as a brake on economic development, rather the contrary.

China as a middle-income country faces new challenges. Addressing issues of poverty, inequality, health and social security has been and will be at the core of the political agenda of the Communist Party of China and the government. Such priorities are good response to the popular demand for better social protection and improvement of services and income levels.

Social policies, broadly speaking, can also reduce a threat to social instability. So, how can social policies be further developed and people's expectations of improved standards of living and well-being be met during times of slower economic growth, growing financial burden of established healthcare and social security programs, and aging population? Will Chinese citizens be willing to pay more taxes in return for increased social spending?

In fact, many Chinese might be willing to pay higher taxes as long as the government increases its social spending. A pre-requisite for this willingness will be sufficient trust in government and the system of tax collection. And trust could be built and strengthened through curbing of corruption. Thus, a recipe for meeting the challenges of increasing financial burdens of healthcare, social security and popular demands for better welfare is first of all one of developing clean and good governance.

However, an important concern is that, increased taxes will hinder China's economic growth as the authorities resort to more proactive fiscal policies to boost the economy. That's why the authorities will need the art to deal with this dilemma.

The author is a professor of comparative politics, University of Bergen, Norway, and professor emeritus, Hertie School of Governance, Berlin, Germany.