Local governments are unlikely to over-borrow as they remain restricted by an annual debt-raising cap of 15 percent on annual expenditure, although the Ministry of Finance’s proposed amendments to the Public Debt Act (公債法) will extend their collective debt ceiling by NT$622.5 billion (US$19.2 billion), Minister of Finance Lee Sush-der (李述德) told a media briefing yesterday.
Lee made the comments in response to criticism that the new law, which sets the combined debt ceiling for central and local governments at 48 percent of average nominal GNP for the previous three years, will allow local governments to bloat their budgets and borrow too much, thus aggravating the nation’s strained fiscal situation.
Taking Sinbei City as an example, the new law will extend the to-be-upgraded municipalilty’s debt credit by NT$289.8 billion, but it will only be allowed to borrow a maximum of NT$20.7 billion each year or 15 percent of its annual expenditures, Lee said.
It was unlikely that a local government would be able to increase annual expenditure single-handedly as their budgets must be reviewed and approved by city or county councils, he said.
The ministry will impose an early warning measure by rejecting debt-raising plans when 90 percent of their annual outstanding debts are unpaid, he said.
Lee likened the debt ceiling for local governments to the maximum credit that banks award a credit card holder, who do not necessarily use up their credit.
“In reality, no local governments have ever had the need to over-borrow. They are far from their debt ceiling,” he said.
He defended the ministry’s proposed amendments to the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法), saying that no local governments will suffer from a financial shortfall.
Primary estimates show that the central government will increase its revenue allocation to local governments by a total of NT$98.2 billion, Lee said.
Greater Tainan will see an increase in revenue allocation of NT$4.2 billion and Greater Taichung of NT$3.6 billion, he said. Sinbei City will seen revenue allocation grow by NT$22.1 billion and there will be a NT$10.7 billion increase for Greater Kaohsiung.
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