Opinion | Why richer, older China needs changes to its social contract

No one likes getting old. The pains and strains of becoming elderly wear on us. The worries about how to ensure we can provide for ourselves in old age looms largest of all, as countries’ birth rates fall, lifespans extend and costs mount.

Nowhere feels this more acutely than China, where a staggering 300 million people are heading into their golden years and a great portion of retirees have minimal or no pension. We also see smaller families because of the now-abandoned one-child policy. As a result, families might find it harder to care for their parents as they age or fall ill.

The challenges are multifaceted. The government needs to build out rather than restrict the social safety net of pensions and healthcare for this growing segment of the country’s population. If adopted, gradual increases in social spending would be taking place at a time when the economy is slowing, straining budgets.

How should China pay for an ageing population and support economic growth? Lessons from other countries suggest that a combination of tax increases (widening the base, extending coverage), more generous social welfare (pensions and other family-friendly provisions) and pensionable age shifts (upwards over a decade or more) could provide a partial answer.

Few people like taxes, but applied fairly, consistently raising taxes to support the provision of pensions and services to seniors and families is a necessary part of the social policy response and will drive revenue. The personal income tax peak rate in China is 45 per cent, which is comparable to other countries. But the reality is far too few middle-class and wealthy Chinese pay taxes and too few Chinese workers pay income taxes.