20100129 Taiwan’s debt deserves attention

Taiwan’s debt deserves attention

By Huang Juei-min 黃瑞明
Friday, Jan 29, 2010, Page 8

Greece is on the verge of bankruptcy, but what, you may ask, does that have to do with Taiwan?

A few months ago, Taiwan’s mainstream media were publishing anxious editorials and opinion pieces about how the nation was up to its ears in debt. Taiwan’s real national debt has reached NT$19 trillion (US$590 billion), and international ratings agencies have started cutting its credit ratings. Despite the seriousness of the situation, the government, and especially the Ministry of Finance, does not seem at all concerned.

How can the situation not be serious when each one of us bears a debt burden of NT$860,000 (US$27,000)? Once, when I was chatting about this with a colleague, he said: “However high the national debt may be, it won’t have any effect on ordinary people’s lives. Life will go on just as before.”

If people are so unconcerned, no wonder the media have stopped talking about it.

Germany is another country weighed down by debt. The German federal government responded to the financial and economic crisis by injecting relief funds of 1.6 trillion euro (US$2.28 trillion). This year alone, the country must pay 42 billion euro in interest — more than it spends on defense, education, science and culture combined. There is endless public debate about how to cope with such an enormous debt. Following last year’s general election, the Free Democratic Party, a minor party that favors making big tax cuts to stimulate investment and consumption, joined German Chancellor Angela Merkel’s government as a coalition partner, intent on carrying out its campaign promises.

This idea has provoked a backlash from German society, from university professors to the man and woman on the street. Everyone is worried that tax cuts will only make the country’s financial situation worse. Germany’s national debt is four times Taiwan’s, but it must be seen in relation to GDP. While Germany’s GDP is US$3.7 trillion, Taiwan’s is less than US$400 billion. If Germans are tearing their hair out over their national debt, how can people in Taiwan not be worried?

The root cause of Taiwan’s national debt is that we are bad at increasing revenue and curbing expenditure. The government squanders money on the one hand and cuts taxes willy-nilly on the other. A good example of squandering money is the more than NT$200 billion paid out every year in pensions for retired military personnel, public servants and teachers. As the number of retirees grows, and with people living longer, this burden can only get heavier. A little more than a year ago, I had occasion to put this point to then-minister of education Cheng Jei-cheng (鄭瑞城).

Cheng answered frankly: “This is a serious problem, but it is not one that the Ministry of Education can solve.”

As the national debt keeps on growing, Taiwan’s credit rating is bound to keep on falling. Another result will, of course, be a big drop in the value of the NT dollar. When that happens, the government will have no choice but to make big cuts in public spending, and the result of that will be frequent protests, demonstrations and social unrest. Clearly, the national debt is going to have a very real influence on the lives of ordinary people.

Greece’s current predicament should serve as a warning. Its GDP is just a little less than that of Taiwan, but its national debt of 300 billion euro has the country gasping for breath. The problems mentioned above have already come into the open. The core problem in Greece is systemic corruption, especially in government. Falsification, cronyism and bribery are deeply rooted in Greek culture. Think about it, though — are Taiwanese any different?

Those who fail to foresee the future will have problems in the present. We should not make the mistake of thinking that the national debt will only bring grief to future generations. It is going to make the present generation suffer first.

Under the third-rate democracy we have in Taiwan, President Ma Ying-jeou’s (馬英九) government will of course keep papering over the cracks, putting the problem off until after he has been elected to a second term.

The worrying thing is this: while Greece has the EU and the IMF to back it up, whom will Taiwan look to when it reaches the verge of bankruptcy? Will we end up begging for money from China? It doesn’t matter which side of the political divide you stand on, that is a nightmare prospect for everyone in Taiwan.

Huang Juei-min is a law professor at Providence University.