Powerful interest groups have paralyzed China’s macro-economic policy, with ominous long-term consequences. Local governments consider high land prices their lifeline. State-owned enterprises don’t want interest rates to rise. Exporters are vehemently against currency appreciation. China’s macro policies have been reduced to psychotherapy, relying on sound bites and small technical moves to scare speculators. In the meantime, inflation continues to pick up momentum. Unless the central government bites the bullet and makes choices, the economy might experience a disruptive adjustment in the foreseeable future.
The first key point is that local governments have become dependent on the property sector for revenue as profits from manufacturing decline and spending needs to rise. Attracting industry has been the main means of economic development and fiscal revenue for two decades. Coastal provinces grew rich by nurturing export-oriented industries. But the economics has changed in the past five years. Rising costs have sharply curtailed manufacturers’ profits, and most local governments now offer subsidies to attract industries. The real revenue has shifted to property.
The dependency on high land prices for property tax revenue is certainly not unique to China. Madison’s 2010-2011 budget will increase property taxes by about 10%, due to spending growth, declining redistributed state tax dollars and a decline in local property values.
I think you’d have to do a lot of manipulating of fact and context in order to make the argument that America’s tax situation, as it relates to funding for K12, has anything in common with China and the way its system of funding and taxation is set up. Perhaps you are making a political point? Or, you are trying to show the gravity of the situation in America? I read Andy Xie’s byline and I thought, Why is Andy getting into education? He’s a well known analyst in Asia-Pacific and I doubt he would have the first clue about school district funding models in the US.
I thought the (over) reliance on increasing property values – nothing goes up forever – was interesting, and familiar. Increasing assessments allow local officials to argue that mill rates have only increased ___%