News Analysis: A more balanced taxing system key to cooling down housing prices

BEIJING, Jan. 21 (Xinhua) -- China's housing prices keep rising, despite the economic slowdown, despite growing complaints about the unaffordability of homes for ordinary people -- and despite repeated attempts by the central government to curb the trend.

Average housing prices in China were up 23.5 percent from the previous year. Regions all over the country, except Tibet, saw prices surge for another year, shattering the dreams of prospective first-time home owners.

Since the housing market was liberalized in 1998, housing prices have flown in the face of repeated central government policies.

In China, it does not necessarily follow that a policy will be implemented once it is made, especially in the case of central government policies. The problem is best embodied by China's affordable housing policy.

In July 1998, the government launched a housing reform and Cheap lace front wigs introduced a quasi-market-based system in which 80 percent of urban people were expected to buy subsidized housing provided by the government, leaving the other 20 percent to the commercial housing market.

The reality is that almost 95 percent of apartments built from 1998 to 2008 were commercial housing, with the remaining 5 percent developed as subsidized housing, says Bao Zonghua, former chief of the Ministry of Housing and Urban-Rural Development's policy research center and a researcher at the Chinese Academy of Social Sciences (CASS).

"The policies may have worked well, but local governments seem to have more reasons to evade them than enforce them," says Bao.

Local government coffers have been diminishing since 1994 when a series of reforms began to weigh the tax distribution system toward the central government, according to a report by the Research Institute for Fiscal Science, of the Ministry of Finance (MOF), in November 2009.

The report said that in the current tax distribution system, the central government took 75 percent of the total value-added taxes, sales taxes and consumption taxes, which made up more than half of all government revenues, and it was more or less the same for other taxes.

Provincial governments took the lion's share of the remaining 25 percent, leaving governments at county and city levels, which were overburdened with social programs and infrastructure building, financially overstretched, said the report.

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"To ask local governments to build more affordable houses and press down housing prices is equal to heading off their biggest source of revenue, which accounts for about 40 to 60 percent of the total revenue," says Bao.

Under the new distribution regime, land sale revenues go to local governments, giving them an incentive to sell land to commercial housing developers and to shy away from restraining housing prices.

"In the long run, all central government policies aimed at reining in housing prices will never win round local governments until they get a share of revenues proportionate to their tasks," says Bao.

Bao's views are echoed in the words of Zhuang Jian, a senior economist of the Asian Development Bank, who said Wednesday the tax distribution system must be reformed to solve local government funding shortages and to avoid repetition of policy failures.

The MOF report said that in addition
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