BEIJING: Slowly but surely, China is executing a shift in tax and spending policies to help meet its goal of rebalancing growth from investment to consumption. Worried by a widening rich-poor gap that could undermine stability, Beijing has already stepped up spending on social security and scrapped agricultural taxes. It is also lifting the threshold on personal income tax and plans to make compulsory school education free in rural areas.

“These are encouraging signs, since government spending on public services has been inadequate for a long time,” said Min Tang, the Asian Development Bank’s chief economist in Beijing.

A quarter of a century of economic reforms has fuelled breakneck growth, but it has also ended cradle-to-grave welfare as Beijing subjected health care and education to market forces.

Reduced subsidies have forced hospitals to raise charges that are beyond the reach of most of China’s 800 million peasants. Schools and universities have raised tuition fees.

The growing bills have not only sparked public anger but have also left ordinary Chinese with less money to spend. Low incomes were especially an obstacle to consumption in the countryside, Tang said.

“More spending on education and health care will not only reduce farmers’ present burdens but ease their future worries, making them more willing to spend,” said Tang.—Reuters