|
The Liberty Times:
Editorial: Urgent action required for survival
Democratic Progressive Party (DPP) Chairman Su Tseng-chang (蘇貞昌) and former DPP
chairperson Tsai Ing-wen (蔡英文) recently suggested that President Ma Ying-jeou
(馬英九) convene a national affairs conference in the hope that the ruling and
opposition parties could meet with representatives of various sectors of society
to discuss reforming the nation’s public pension systems. Ma rejected the
proposal.
Ma’s incompetence is common knowledge, but even people within the pan-blue camp
think it unwise to refuse to convene a national affairs conference. This is
because if the nation’s pension funds are not reformed they will go bankrupt.
Additionally, the way the current system unreasonably favors certain social
groups has not only placed a serious financial burden on the country, it has
bred class antagonism.
These issues require collective wisdom to be solved and cannot be solved by one
political party or by one person, no matter how gifted they are.
Rejecting Tsai’s suggestion not only means missing an opportunity for reform to
be carried out jointly by the ruling and opposition parties, it also means that
it will be very difficult to revamp the pension system.
Taiwan’s finances and economy are riddled with problems and are almost beyond
help. The challenges and tests that lie ahead are no less daunting than those
facing any other country, including the PIGS economies — Portugal, Italy, Greece
and Spain.
One of the manifestations of these problems is that the national fiscal deficit
is a structural problem, meaning that new debt must be issued annually simply to
repay current debt.
For example, next year, NT$205.681 billion (US$7 billion) will be required to
repay loan principals and interest on government debt. That is 10.53 percent of
the normal budget and the special budget. This means that more than 10 percent
of central government expenditure will be used to repay debt.
In addition, the repayment of loan principals will be financed by issuing more
debt, causing a vicious cycle of issuing debt to repay debt, which of course
means the total amount of debt just keeps increasing.
However, the days when the government can keep engaging in this cycle are
numbered. At the end of this year, the government’s unpaid long-term debt will,
for the first time ever, exceed NT$5 trillion. By the end of next year, it will
increase to NT$5.27 trillion, amounting to 37.1 percent of the three-year
average GNP.
This is extremely close to the legally allowed upper limit of 40 percent, and
only leaves room for the government to issue another NT$400 billion to NT$500
billion of debt.
If hidden debt and money borrowed from non-profit funds are added, overall debt
is nearing NT$22 trillion, almost 150 percent of GDP and close to Greece’s debt,
which stands at 165 percent of GDP.
Taiwan, could very well become the Asian version of Greece. However, Greece has
the active support of the eurozone member states, the European Central Bank and
the IMF.
Who could Taiwan turn to for assistance if it suffered a sovereign debt crisis?
Apart from the problem of the fiscal deficit, the government’s budget allocation
is becoming increasingly rigid, with the vast majority being allocated to
low-productivity statutory budgets such as personnel costs, benefits and
retirement funds, instead of being used to spur economic development.
Take the central government’s general budget proposal for next year as an
example.
The annual budget is NT$1.9446 trillion, yet legally mandated major expenditures
have reached more than NT$1.3513 trillion, accounting for 69.49 percent of the
yearly budget and leaving only slightly more than NT$593.2 billion that can be
used freely.
One can gain a sense of how serious the situation is by looking at personnel
expenses alone.
The government’s structure and bureaucracy is bloated. Apart from having one of
the highest numbers of ministries in the world, civil servants account for 3.5
percent of the overall population. This is a much higher figure than South
Korea’s 2.12 percent, Singapore’s 2.9 percent and Japan’s 3.18 percent — it is
too high a proportion.
In next year’s government budget, personnel expenses are projected to be
NT$425.8 billion. This represents 21.90 percent of total yearly expenditure and
is approximately 15 percent more than in other advanced nations, such as those
in the EU.
As a result, the budget for infrastructure projects has been crowded out and
dropped from NT$299.6 billion in 2010, to NT$262.9 billion last year and
decreasing still further to NT$185.1 billion this year. Next year, it is
projected to be NT$175 billion.
With the budget for infrastructure projects shrinking each year, less and less
funding will be available to spur economic growth. Government bodies exist to
improve the public’s well-being and to encourage economic growth, but the
worsening imbalance between fiscal revenue and expenditure has had the opposite
effect: It has turned the government intoan entity solely capable of maintaining
its own operation instead of serving the public.
Another indication of economic disintegration is a major loss in national
competitiveness.
The economy took off thanks to the development of traditional manufacturing
industries and contract manufacturing for electronic goods. However, the
majority of these industries are weak in innovation, research and development,
and branding, as well as being mostly focused on contract manufacturing and
assembly.
If this does not change, Taiwan will forever be caught in a price war with
emerging economies. This “race to the bottom” makes local businesses
increasingly preoccupied with lowering costs, moving production bases to areas
with ever-cheaper labor.
This in turn creates a situation in which businesses who have moved away from
Taiwan become increasingly disconnected from the local economy and the revenue
they make having little impact on the creation of employment opportunities, nor
improving the wellbeing of domestic workers.
For example, Hon Hai Precision Industry Co is the world’s largest contract
manufacturer for electronic goods, but its production base is in China, where it
has created 1 million jobs. The Taiwanese side of its operations accounts for
less than 1 percent of overall operations and so regardless of how great its
financial reports may be, little of that money benefits Taiwan.
Deteriorating government finances, the risk of retirement funds going bankrupt,
a loss of competitiveness among businesses and incompetent leaders means the
nation faces problems somewhat similar to the “fiscal cliff” in the US, and the
European debt crisis. These factors have also weakened the industrial structure
and led to a lack of leadership.
Even if the economy does not suddenly collapse, the day when it will start to
steeply decline is not far away.
However, Ma is only concerned with the Chinese Nationalist Party (KMT)
chairmanship elections and his own power.
He is unwilling to confront the crisis facing the nation and the risk that the
economy could collapse. He seems to think that as long as he can get through his
last term in office, he will be able to shirk responsibility for any future
problems.
Because the Constitution designates the president the nation’s leader, until Ma
is willing to take on the responsibility of carrying out necessary reforms,
Taiwan’s future seems very bleak.
Translated by Drew Cameron
|
