WASHINGTON (Reuters Breakingviews) - A ministerial demotion is set to upend the Chinese property market. President Xi Jinping is preparing to sidestep traditional policy shops, such as the Ministry of Finance, to put decision-making into the hands of a smaller group of individuals. One consequence will be an accelerated push to pass a national property tax.
Xiao Jie, head of MOF, seems set to step down after little more than a year into his job, according to Reuters sources. His likely successor, Ding Xuedong, suggests the finance ministry’s influence is being watered down. Ding rose through the ranks of the ministry as a human resources functionary, with a reputation for implementing policies, not making them.
MOF will not be the only bureaucracy demoted by Beijing, part of a wider thrust to consolidate power in the hands of individuals loyal to Xi. While a smaller group of policymakers will entail trade-offs, it might be more willing to push through politically contentious policies that MOF struggles with, especially a nationwide property tax.
A levy is overdue. Giving local governments a recurring source of tax revenue would decrease their need to sell land to fund their budgets. It might also discourage housing speculation and put downward pressure on rents by making it more expensive to hold apartments empty. It’s also relatively easy to administer.
Such a move is guaranteed to incur the wrath of homeowners. however. Pilot programmes in Shanghai and Chongqing were rolled out in 2011, but some studies subsequently suggested the Shanghai tax knocked up to 15 percent off average property prices. Other research published by the Lincoln Institute of Land Policy suggests a nationwide scheme could take a 10 percent bite out of home values. In the worst case, the tax could trigger a wider downturn. Real-estate related business activity is estimated to drive around a quarter of GDP growth.
But now that the economy looks to be humming, the tax has quietly crept back into the discussion. The Ministry of Finance, provincial leaders and others have struggled to achieve consensus, but with policymaking power increasingly in other hands, the tax might move forward next year and pass the legislature as early as 2019. Developers and investors should be ready.
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