State Council redirects land sale profits to education

The State Council has ordered local governments to direct 10% of their profits from land transfers to education, as China’s cabinet seeks mechanisms to fund an extra US$30.9 billion earmarked for improving education resources by 2012, state media reported. The 10% levy has been backdated to January 1. The decree also noted that local governments “should not reduce or remit” the amount of the levy or add education charges to raise education spending to the targeted 4% of national GDP.  According to official figures, China earned US$1.08 trillion from land transfers between 2006 and 2010. While public fiscal spending on education increased by 20.2% annually during that period, it did not keep up with overall economic growth. Although developed countries typically spend between 5-7% of their GDP on education, the State Council has admitted that raising spending from 3.56% of GDP to 4% would be “very difficult” in China. One economics professor quoted in the article noted that levies on land transfers are not sustainable given declining inventories of valuable land held by local governments. He suggested that state-owned enterprises should also be taxed to help meet the target.