20120531 EDITORIAL: Ma’s credibility on line in tax dispute

EDITORIAL: Ma’s credibility on line in tax dispute

Just 11 days into his second term, President Ma Ying-jeou (馬英九) is facing a new crisis as doubts and questions about the legitimacy of his administration and his credibility in fulfilling his campaign promises intensify.

On Monday, the Chinese Nationalist Party (KMT) legislative caucus rebelled against the Cabinet’s securities capital gains tax bill, a key measure of the president’s promise to promote social justice. This was followed by Minister of Finance Christina Liu (劉憶如) resigning after a little more than three months in office, because of disagreements with the KMT caucus’ version of the proposed tax. Liu said the party’s version did not meet the government’s ability-to-pay principle and would not force many of the nation’s top earners who derive a large portion of their income from securities investments to pay more tax.

Liu’s abrupt move showed her determination to take responsibility for the government’s earlier promise to introduce the nation’s first securities capital gains tax in more than two decades, as the twin problems of a widening wealth gap and increasing government debt get worse. Although Liu’s resignation is her own business, as the public has seen numerous officials come and go over the years, the social and political implications that her action would bring to Ma and the KMT administration over the next four years is worth scrutinizing.

First, Liu’s resignation opens a new chapter in the crisis facing the Ma administration as the president struggles to recover from record-low approval ratings. The controversial tax proposal that has sparked strong opposition from the business sector and legislators across party lines since late March, culminating in Liu’s resignation, highlights the Ma administration’s long-standing weaknesses in decisionmaking and crisis management.

It also suggests poor communication between the Presidential Office, the Cabinet and KMT lawmakers, which may develop into a crisis of confidence or mistrust between the administration and party lawmakers. This will only heighten doubts about Ma’s leadership if the problems are not fixed in time.

Second, disagreements over the tax issue also seem to exist within the Executive Yuan, with most other ministers attempting to keep a distance from the Ministry of Finance’s tax plan and Liu becoming increasingly isolated. This will make it even more difficult to convince lawmakers and the public on the urgency of the government’s tax reform efforts.

The fact is the nation’s long-term development would inevitably be affected by the widening gap in income between rich and poor. If the finance ministry needs to take harsh measures to narrow the wealth gap, it would need the support of other government agencies to tackle the problem. As such, if the administrative team continues to fall to pieces, Liu’s resignation will not be an individual case and the only question is who will be the next to bow out.

Third, the KMT caucus’ version of the tax bill might have the least impact on the capital markets, including the stock market, but it is too watered down to achieve real tax reform compared with other proposals tabled by the Executive Yuan and opposition parties.

If the government aims to push through the KMT caucus’ proposal in the legislature, people who demand fairer taxation and equitable wealth distribution will be very disappointed. It will invite speculation about the government compromising with vested interests and cast doubt on policymakers’ other proposed reform measures, including a capital gains tax on housing and land investments.

Ma and his administration have hurt public confidence with their roughshod introduction of the tax plan and mishandling of the disputes over the past two months. However, if they cannot offer a better alternative than the blunt, poorly designed tax bill proposed by the KMT caucus, they will lose all their credibility and legitimacy.