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Borrowing more money
is not OK
By Huang Shih-chang, Wu Hui-lin 黃勢璋，吳惠林
When the Minister of finance reported on the state of government debt a few days
ago, saying that it was going off the scale, President Ma Ying-jeou’s (馬英九)
reaction was: “Government debt in some countries stands at 200 percent of GDP,
but they are doing just fine. That is why a lot of people wonder what we are
afraid of, saying ‘Go on, borrow some more.’ Why can’t we issue more debt?”
This response is deeply regrettable and a cause for great concern given the
uncertain future of today’s young and future generations.
On the face of it, Taiwan’s national debt stands at 38.6 percent, a lot less
than in other high-debt countries. This seems to imply that Taiwan’s debt
situation is both sound and safe. However, in reality this hides a risk for
potential national bankruptcy, because the government’s definition of national
debt differs from the international standard.
This also means that when the government makes debt comparisons with other
countries, the results are often ridiculous because of the different calculation
standards.
According to articles 4 and 5 of the Public Debt Act (公共債務法), the government
issues non-self-liquidating debt with a maturity of one year or more, excluding
short-term debt with a maturity of less than one year.
Furthermore, in 2010, the Control Yuan issued a correction to the Cabinet
because it thinks that although the formula for calculating national debt meets
the legal requirements, it does not comply with the international definition and
therefore it is not suitable for making comparisons with other countries.
In June, the legislature passed an amendment to the Public Debt Act that
replaces GNP with GDP as the basis for debt calculation and amends the debt
ceiling for the national and local governments so that debt may not exceed 40.6
percent and 9.4 percent respectively, of the average nominal GDP for the
previous three fiscal years.
These changes are the main ways in which the government wants to restructure
local governments, amend the debt restriction structure for the different
government levels and meet international standards.
However, this is nothing but a flawed recipe for issuing more debt.
This flawed amendment, together with the repeatedly raised debt ceiling, will
not be a positive recipe for handling the deteriorating debt situation. It is
more like a sugar-coated poison pill that will do nothing to control the
situation, but instead will increase debt by NT$72 billion (US$2.43 billion).
It has been 20 years since the government was told that it must understand the
taxes paid by the public are the precondition for the government services that
they need and enjoy, and that continuously borrowing money will not promote
public happiness and satisfy more needs.
The transformation and upgrading of the country’s industrial structure is not
going very well, unscrupulous businesses create scandal after scandal, overall
economic performance over the past few years has started out promising much and
ended in desperation, and the government is only capable of promoting tax
incentives, as if tax cuts were a cure-all.
The result has been that Taiwan’s tax burden is among the world’s lowest.
This in turn has affected the constantly deteriorating fiscal situation, which
in future will force the government to issue debt simply to be able to finance
its policies and budgets. This has led to a situation in which the government
needs to raise debt to service debt, just as so-called “credit card slaves” must
rely on their cards to make ends meet, placing the government in a vicious
circle that it is unable extract itself from.
This is why, as Taiwan is facing its current fiscal difficulties and national
debt is bringing the nation to the edge of the cliff, we again call on the
president to rein in his horses and stop raising the debt so that long-term
sustainable development for coming generations can be promoted.
This is a situation that cannot be faced with the mindset that it is okay to
borrow more money.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic
Research. Huang Shih-chang is an assistant researcher at the institution.
Translated by Perry Svensson
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