Thu, Aug 02, 2007 - Page 12 News List

Government halves grain taxes

QUICK FIX? Wang Lee-rong of the Chung-Hwa Institution for Economic Research said the Cabinet's measures to combat inflation would not have a lasting effect

By Jimmy Chuang and Jessie Ho  /  STAFF REPORTERS

To help stabilize soaring consumer prices, the Cabinet announced yesterday that the government had halved tariffs for seven agricultural products effective for the next six months.

However, economists said the government's attempt to ease prices would be of little help.

The products included wheat, wheat powder, hull-peeled wheat, sweet corns, sweet corn powder, corn liquor and soybeans. The tax cut for these items was effective immediately.

"It is estimated that we will lose at least NT$200 million [US$6 million] to NT$300 million in taxes because of this tax reduction. We will decide later whether to continue with this or not if inflation is not controlled," Ho Mei-yueh (何美玥), chairwoman for the Cabinet's Council for Economic Planning and Development, said yesterday.

Ho made the remark during the press conference after yesterday morning's weekly Cabinet meeting.

She said consumer prices during the first six months of the year were "incredibly high."

Ho said that it was the government's task to address this, citing Premier Chang Chun-hsiung (張俊雄) on the issue.

In addition to reducing tariffs for the seven products, Chang also demanded the Ministry of Economic Affairs (MOEA) improve the current floating price mechanism for gasoline prices, which fluctuates every week in connection with price fluctuation of West Texas Intermediate (WTI) crude oil traded on the New York Mercantile Exchange.

Meanwhile, the government will be watching for any unreasonable hikes in grocery prices, Ho said. Any company that raises grocery prices will be investigated and could face prison sentences, she said.

To ensure the supply of raw materials, the Cabinet also asked the MOEA to ban exports of steel and other items if necessary to protect the local economy.

After the Cabinet's announcement, the MOEA announced it would immediately suspend exports of waste paper, the main ingredient in industrial papers, to meet domestic needs and ease the prices of industrial papers.

The price of domestic waste paper has jumped to between NT$4.2 and NT$4.6 per kilogram, up by 61 percent to 77 percent from NT$2.6 per kilogram in January on soaring demand from Chinese papermakers, a statement said.

Exports of waste paper for the first half of the year rose by 94 percent to 25,000 tonnes from the same period last year, the ministry said.

The Cabinet's efforts were not well received by everyone.

"The market mechanism is still the major force in determining prices," said Wang Lee-rong (王儷容), director of the Center for Economic Forecasting at the Chung-Hua Institution for Economic Research (CIER, 中經院).

"What the government can do is limited and short-lived and only soothes mounting pressure from the public," Wang said.

Prices of many consumer goods are expected to continue rising as companies can no longer absorb surging costs, Wang said.

The price of milk, for example, increased by 10 percent in the middle of last month and continued to rise yesterday.

According to government statistics, the wholesale price index (WTI) jumped 7.11 percent during the first six months of the year from one year ago, but the consumer price index (CPI) climbed only 0.61 percent over the same period, indicating that retailers were absorbing rising in costs to compete on the market, Wang said.

CIER predicted the CPI would be 2.1 percent for the third quarter and 2 percent for the fourth quarter. However, the indices could be even higher, triggering inflation concerns as some hypermarkets and supermarkets may begin raising prices to accommodate their rising costs by the end of this month, she said.

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