(China Daily)
Updated: 2007-11-20 07:25

Tax reduction is the best solution when there is pressure for price hikes, says an editorial in Southern Metropolis Daily. The following is an excerpt:

The National Development and Reform Committee (NDRC) issued a report last week which says that as operational costs increase with rising oil prices, public transport prices during the Spring Festival in February next year will not be kept at this year's level. In other words, the NDRC is sending out advance warning there will be a price hike in two months.

Judging from public opinion, there is more opposition than agreement to the price rise. Market prices are fixed according to demand. But the public's reaction to this price increase is not unreasonable.

First, railways are State monopoly enterprises meant to serve the public. They enjoy a position of advantage in a seller's market, especially during the Spring Festival.

Even if there is evidence to show that the railways are suffering serious loss, and an increasing ticket prices is the only resort, there should be a public hearing on the matter.

At the same time subsidies should be granted to low-income workers returning home during the Spring Festival period.

Second, most of the country's road and water transportation companies are non-publicly owned and are in fierce market competition. The government therefore should not interfere in the control of prices. But the current problem is, as pointed out in the NDRC report, price hikes may turn consumers away and finally lead to a lose-lose situation.

Generally administrative measures can be taken to control prices. But this goes against market rules and the result may not be good. The increase in people's incomes may be a solution but this relies on the profits of enterprises first. There is a third way - tax reduction.

It is estimated that 2007 will see 11 percent GDP growth and 30 percent increase in State revenues.

Statistics show that the consumer price index growth reached 6.3 percent in September and 6.5 percent in October while the income of low-wage earners only rose by 5 percent and their actual living standard decreased. Tax reduction for both companies and individuals at such a time will be extremely significant.

When enterprises and citizens are both facing the huge pressure of price hikes, tax reduction is the wisest choice. It will promote enterprises' development, expand employment and increase national incomes. The growing rate of China's financial revenues has been much higher than that of the GDP and national incomes for many years. China can afford a tax reduction today.

(China Daily 11/20/2007 page10)