By Ma Hongman (China Daily)
Updated: 2007-08-23 11:02

The consequence of overt involvement of the government in the economy leads to sluggish spending, a slump in economic growth and a possible decrease in State income.

Therefore, it is impossible to expect sustainable economic growth from such a government spending policy.

Public spending should not be directly involved in the economy or commercial operations; its focus should be on problems in the public sphere. The government should take care of the people's basic needs and promote social fairness, while the market should be allowed to play its role in value definition and free competition.

To put it simply, public finances should take care of two issues: collect taxes from the wealthy and offer a minimum guarantee to protect the low-income population.

This is being practiced in many countries. A good percentage of the US government's money goes on social welfare.

The British government also spends heavily on social welfare which is much appreciated by its people.

Because of the inadequate financial input by the State, Chinese citizens are not universally covered by social welfare. The current scheme is not well organized.

The medical care system is widely criticized for its high costs, low efficiency and abuse of medicines. One of the major reasons for the weakness is that hospitals must support themselves.

The State's financial strength can afford reform of its expenditure.

It was calculated that an annul input of 150 billion yuan ($19.7 billion) to 200 billion yuan ($26.3 billion) would be enough to establish a medical care plan covering all Chinese citizens. This is about 1 to 1.5 percent of the annual GDP or 5 to 7 percent of the State's income, an expenditure that is affordable by the central government.

Public funds pumped into the social welfare system, boost consumers' confidence as it lessens their concerns for the future. The lift in consumption would act as an engine for economic growth, which in turn will propel the State's income.

Of course, public spending reform not only relies on the State's wealth but more importantly on decision-makers.

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