Chen's promises hamstring government

President Chen Shui-bian's (陳水扁) campaign promise that he will never raise taxes during his term have blocked the government from taking the initiatives necessary to implement financial reforms, pundits said yesterday.

Yophy Huang (黃耀輝), an associate research fellow at the Chung-hwa Institute for Economic Research (CIER), said a series of tax cuts announced by Chen has decreased government revenues to only 13 percent of the GNP, while government spending, remains as high as 25 percent of GNP.

Before Chen's administration, tax revenue accounted for around 18 percent of the nation's GNP, which is the total dollar value of all final goods and services produced for consumption. Its rise or fall measures economic activity based on the labor and production output.

"The sizable discrepancy will disable the government from achieving its goal of balancing revenue and expenditures," Huang said at a seminar, co-organized by the economics department of National Taiwan University and the National Policy Foundation.

The president's Economic Development Advisory Conference last August concluded that the government should immediately work to balance revenue and expenditures.

Growing the deficit

Hidden debts and the implementation of welfare policies are likely to increase the government's deficit, he said.

The government is facing a deficit of NT$260 billion in addition to its cumulative NT$3.5 trillion in debt this year. The 186 government funds are expected to lose over NT$600 billion.

"In total, government debt may reach 35 percent of the nation's GDP," Huang said.

Wei Duan (韋端), former head of the Directorate General of Budget, Accounting and Statistics under the KMT government, DPP legislator Shen Fu-hsiung (沈富雄) and Sun Keh-nan (孫克難), a research fellow at the CIER concurred with Huang's assessment of the government's revenue dilemma.

Sun suggested that the government gradually decrease rate of the personal income tax from 40 percent to 35 percent and raise the business income tax rate from 25 percent to 30 percent.

The government should find ways to increase tax revenue by 1 percent of the GNP per year -- generating approximately NT$100 billion -- allowing tax revenue to reach 18 percent of the GNP within five years, Sun said.

Shen said the government should increase the business tax from 5 percent to 7 percent. By doing so, around NT$80 billion could be added to the nation's treasury.