China's current financial policy is facing increasing challenges and threatens to become unsustainable. To generate sufficient revenue and close the growing financial gap, the government is considering raising taxes. However, this risks alienating the rich and middle class from President Xi and his policies. China faces a delicate task of striking a balance between ensuring tax revenues and maintaining middle-class prosperity writes the FD.
One of the challenges facing China is the decline in revenue from land sales. This is an important source of revenue for the Chinese government, but revenues have been declining recently. At the same time, pressure on social services is increasing due to an aging population. To address these financial challenges, it is necessary to increase tax revenues.
However, the Chinese government is aware of the potential consequences of raising taxes. There is a risk that raising taxes will discourage the rich and middle class and undermine their confidence in the policy. Therefore, the government is looking for ways to increase the tax burden without affecting the prosperity of the middle class.
The fact that China, a country with a communist state form, is engaged in balancing taxes and welfare shows the evolution of the Chinese economic model. Capitalism seems to be taking more and more root in China, while maintaining the communist form of state. This has led to a growing middle class and increasing prosperity in the country.
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Maintaining a strong middle class is critical to China's stability and prosperity. The middle class plays a crucial role in boosting domestic consumption and promoting economic growth. Therefore, it is understandable that the government wants to proceed cautiously in raising taxes to ensure that the middle class maintains its prosperity and continues to contribute to the economy.