Not cutting taxes and only increasing wages is not very practical.
The wage growth baseline may only be effective for government agencies and state-owned enterprises and public institutions. However, its role is a double-edged sword and might even have more disadvantages than advantages because it will further stimulate the revenue increase impulse of the government and state-owned monopolistic enterprises, further worsen the situation of the country's overall excessive tax burden and low wage ratio, and at the same time further widen the wealth gap. The minimum wage standard as a mandatory standard, although beneficial to improving the income status of the people, has limited significance in improving the economic and social fundamentals due to its small scope of action. The Chinese economy is in a difficult transformation period, and many manufacturing enterprises' profit conditions and expectations have been greatly affected by rising production costs such as oil prices. Therefore, large-scale wage increases in enterprises are currently impractical. Not to mention keeping up with inflation, a more dangerous stagnation risk has already become apparent.
If a large number of manufacturing enterprises go bankrupt and close down, the number of unemployed people will inevitably increase significantly. The government must take real tax-cutting measures and appropriately lift price controls in accordance with market rules. Cutting individual income tax is equivalent to directly raising wages for employees; reducing corporate taxes could possibly increase employment opportunities, which is equivalent to indirectly raising wages for employees.
Dr. Chen Xinping from the Ministry of Finance's Institute of Fiscal Sciences stated that with the implementation of a tighter monetary policy, the doors for loans from some financial institutions are almost completely closed to them. In order to maintain the survival and development of small and medium-sized enterprises, it is necessary to implement a moderate tax reduction policy for some enterprises that comply with national industrial policies. Proposing appropriate tax cuts for small and medium-sized enterprises can on one hand alleviate the operating pressure brought by the rise in factor prices including interest rates; on the other hand, it can increase the proportion of enterprise employees in the primary distribution through the method of raising the minimum wage level. In Chen Xinping's view, on one hand, fiscal measures need to be taken to offset the negative impact brought by the contractionary monetary policy; on the other hand, measures also need to be taken to lay the groundwork for expanding domestic demand and promoting economic transformation. From a short-term perspective, it is necessary to moderately reduce taxes for small and medium-sized enterprises, increase subsidies for middle- and low-income families, and impose a "Tobin tax" on cross-border capital. Former World Bank President James Wolfensohn also believes that China should shift its focus from state-owned enterprises to encouraging the rapid development of small businesses and private investors, whether in rural or urban areas.
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