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The looming public debt crisis
By Sun I-hsin 孫一信
Tuesday, Jun 15, 2010, Page 8
The government has caused a public uproar by going back on an
earlier promise to offer tuition fee subsidies to all private senior and
vocational high school students so that they pay the same as students in public
schools.
In other words, no one should now be surprised if there are further
cancellations, policy revisions or a tightening of subsidy qualifications.
Public complaints are all but useless because this is the unavoidable result of
the direction Taiwan’s tax system and fiscal policies have taken over the past
two years.
Data from the National Treasury Agency indicates that the government debt
ceiling stipulated in the Public Debt Act (公共債務法) was NT$165 billion (US$5.16
billion) for last year and NT$228.7 billion for this year. Special budget debt —
for things such as consumer vouchers, the economic stimulus plan and relief work
for Typhoon Morakot — not included in the act was an additional NT$252.5 billion
for last year and NT$305 billion for this year.
These figures reveal that for the first time in Taiwan’s history, special budget
debt exceeded annual budget debt. Even though the Cabinet has allocated many
non-urgent infrastructure projects and expenditure to deal with issues ranging
from unemployment to special budgets — which are not restricted by the Public
Debt Act — debt accumulated through the annual budget, which is regulated by the
act, has already reached NT$4.6 trillion. This amounts to 35.08 percent of
Taiwan’s GDP and is closing in on the 40 percent limit.
The economic slump last year caused tax revenue to contract by NT$260 billion.
While temporary and not of the government’s making, the government has over the
last two years cut business income tax, individual income tax, estate and gift
tax and the futures transactions tax. The government has also added special
deductions and maintained the deduction for research and development in order to
boost industry. Even ignoring the lost tax revenue caused by the great increase
in corporate “unappropriated retained earnings,” the tax cuts alone constitute
an annual loss of NT$209.5 billion.
The Ministry of Finance estimates that with the expiration of the Act for
Upgrading Industries (促進產業升級條例) on May 12, the government’s tax revenue during
the first year transit period will be about NT$34 billion. In other words, there
will be a shortfall in central and local government tax revenue of NT$175.5
billion next year. Whereas the average per-capita tax burden in Taiwan last year
was 12.2 percent, some in the media are predicting this will fall to 11.3
percent in the near future.
Taiwan has no room for more public debt, but government tax revenues are
shrinking rapidly. Standard & Poor’s, Fitch Ratings and other ratings agencies
have consistently labeled the outlook on Taiwan’ sovereign credit rating as
negative.
This fiscal situation is having a serious effect. For example, the government’s
social welfare budget has decreased by NT$9.6 billion for this year, not
counting national health insurance subsidies for local government.
When submitting budgets for next year, government ministries have been
instructed by the Directorate-General of Budget, Accounting and Statistics (DGBAS)
to lower their annual budget request by 5 percent. The draft amendment to the
Social Assistance Act (社會救助法), crucial to the public, is still sitting in the
Cabinet since there is no budget for it. In addition, the nation also faces the
looming problem of retirement pensions for military personnel, civil servants
and school teachers, not to mention the fact that some are predicting the
imminent bankruptcy of the labor, farmer, and national pension insurance
schemes.
From this perspective, the controversial tuition fee subsidies are one example
of government retrenchment that the public has noticed. Although tightening the
policy to exclude high-income households has some minor side-effects, greater
financial disasters are just around the corner and when they hit, they could
shake the very foundations on which social welfare, medical care and education
in Taiwan are built.
There could still be a chance to avoid this outcome, but unfortunately, we have
a finance minister who believes that only a fool would not borrow every penny
possible and a DGBAS minister whose main contribution to the debate has been an
attempt to cancel the public debt ceiling. How can we not be worried?
Sun I-hsin is spokesman for the Tax Reform Alliance.
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