Improving the standard of living of the people and increasing the share of personal income in the overall economy was a major theme at 5th plenum of the 17th Central Committee of the Communist Party of China (CPC) that concluded on October 18. Accelerating the growth of incomes of ordinary citizens is now at the top of the Party's agenda.

Since the adoption of the reform and opening up policy, China's overall strength as a nation has grown enormously. But the people have not shared equally in the benefits flowing from economic growth. The gap between rich and poor is growing and the share of personal income in GDP has fallen dramatically compared to 30 years ago.

The gaps between urban and rural areas, private and public sectors, top earners and average families are also growing. These gaps are mainly due to defective laws and tax policies.

Labor-intensive enterprises are subject to heavy taxes which discourage them from raising wages. State-owned companies monopolize resources, allowing them to create huge wealth at little cost, and pay salaries that are higher than the norm.

China's current tax system doesn't narrow the income gap. The starting level for personal income tax is very low, so middle and low income earners bear most of the burden. The absence of an inheritance tax has created an idle second generation who became rich through no effort of their own. The lack of a property tax has helped fuel the boom in house prices.

Over the next five years, the government should cut the tax burden on small and middle-sized companies while increasing the proportion of taxes collected from those monopolizing enterprises. Trade union branches should also be established in all companies.

Along with measures to increase wages, the tax system should be reformed to build an olive-shaped distribution of income. An inheritance tax should be collected to reduce wealth disparities. Property taxes should be imposed to increase the cost of owning houses and discourage speculation.

Government investment in education, public health and social security should be increased. According to the statistics from the Asia Bank, government expenditure on education, health and social security accounts for only 6 percent of GDP compared with an average of 28 percent in developed countries. The government needs to build a comprehensive, sustainable public service system covering both urban and rural areas.

Central Committee plenums have in the past been the springboard for significant shifts in economic policy. Let us hope the recent plenum was one of them.

(This article was translated by Chen Chen)