After Chinese government launched the program to develop the western regions, a simplistic viewpoint has occurred on the question of how to turn resource advantages of the West into economic advantages, i.e. to expand resource tax base and increase the rate and therefore to increase the share of rents of western provinces. As argued previously, the negative stimulus as a result of property right arrangement and distribution of rents consumes a great number of rents and therefore reduces to a great extent the participation of tax revenues in the distribution of rents. The real question is first of all to avoid rent dissipation, and to enable western regions with resource advantages to benefit from distribution of rents and develop themselves.
1. Rational property right arrangement is crucial to efficient use of resources.
It is under such prerequisite that rent dissipation can be reduced and a rational benefit sharing mechanism can be established between the central government, local communities, mining companies and local residents to promote development in poor regions. There are two different opinions on whether to decentralized property rights of natural resources. Some argue that local government should have property rights on natural resources in areas under their jurisdiction and have independent legislative power to tax these resources, capable of obtaining a bigger share in the distribution of rents. This argument as a matter of fact follows the experience of federal countries, and is referred as decentralization method in this article. Others argue that legislative power and resource tax belong to the central government which transfer revenues to less developed regions according to certain rules. It is called centralization method here.
Decentralization method helps local communities to benefits from distribution of rents in the short term, but from a long term point of view, problems occur in federal countries in the West today may appear in China in the future. A conclusion can be drawn from studying evolution of policies on natural resource tax in different countries. Apart from differences caused by data and methodologies, for countries endowed with natural resources or for sub-national governments, economic factor is only one of the aspects which affect resource tax policies, but institutional and pragmatic consideration in the political process make the policies more complicated. (Church, 1981)
Case studies in the U. S. and Canada also tell that it is not workable in the long run to give local government more power of taxation and make them more autonomous in distributing rents of resources just for the purpose of increasing fiscal capacity of the resource-rich western provinces. We have to be more cautious of putting forth the suggestion when thinking that western provinces are generally short of fiscal revenues and there is a great demand to increase them. Local governments are more likely to take irrational actions to prioritize short-term revenue growth and therefore jeopardize long-term interest of investment and development. We found the same problem in almost all the resource-rich cities in Sichuan, Jiangxi and Gansu, i.e. enterprises ask for resource tax reduction while governments want to increase taxes. When interviewing local officials in Zigong, a salt producing city in Sichuan, on the reasons for the problem, they said that fiscal revenues of some western regions relied on local resources such as forests, coal or salt, described as “timber fiscal finance”, “coal fiscal finance” or “salt fiscal finance”. When the sources of wealth exhaust or become inaccessible, local fiscal revenues lose their foundation. Therefore the West is in the dilemma of the survival of enterprises and financing government operation.
The argument on centralization is more in accordance with the economics of government distribution of resource tax revenues. However it implies the problem of general transfer payment, i.e. whether the central government can redistribute resource tax according to the localities of resources. If this is not taken into consideration in the transfer payment program, local governments may not agree to transfer the ownership of resource tax. Although resource tax is yet a major source of provincial fiscal revenues, they are more interested in the right in allocating it.
2. To regulate price system of natural resources. The problem of low price has been long existing in resource products in China. When western provinces trade resource goods for industrial goods with eastern regions, most rents of resources are shared by the latter through irrational price system. To date, low profit of raw materials and primary products is still an obstacle for resource-rich provinces to get rich. Short of accumulation, poor provinces though rich in natural resources are neither able to invest in new prospecting and exploiting activities or have almost exhausted the resources with the danger of no alternative industries. To take Jiangxi as an example, it is rich in mountain land, water and forest resources, and particularly in non-ferrous metal and non-metal ores. Being short of capital, investment in mineral industries is very limited. Additionally, because of the distorted prices for resource products, private cost of enterprises who use state resources is lower than social cost, while private benefits are higher than social benefits, encouraging virtually predatory exploitation and use of state resources, and astonishing waste during the process, not to say pollution and damage of the environment on which human beings so much depend.
1. To capitalize natural resources.
Mineral deposits are reduced when exploited, but the living of local residents should not be affected by the exhaustion. Attention should be brought to establish local mechanisms of accumulation to for instance invest in new mines or other industries (rather than to turn over all profits to the central government or consume them) to build local capacity of development and improve living conditions of the local people. Without such consideration, many resource-rich cities have almost exhausted the yield after years of exploitation but have not accumulated capital to develop other industries. The sustainability of urban development is severely challenged, and problems of rampant unemployment and social instability have occurred. The Alaska Permanent Fund (Alanna Hartzok, 2002) offers an inspired case for capitalizing natural resources.
2. To adjust present resource tax
To coordinate the above measures, the present system of resource tax can be adjusted. (1) To enlarge the source of tax. In addition to mineral ores and salt, taxes can be levied on forests, water, land and other zoa and flora resources. (2)To levy more items on ad varolem basis. (3) To raise properly resource taxes based on rationalizing prices of resource products, reforming the operating mechanisms of state mines and reducing policy cost and non-operation cost of tax collection. (4) To take into consideration the factor of transfer payment from resource-rich provinces to other provinces during economic planning period, in order to rationalize general transfer payment based on the rules of applicable factors. (5) To determine the direction of using resource tax revenues in relation with capitalizing resources.