Reduced labor protection, fewer restrictions for companies and lower taxes for businesses boosted Taiwan’s overall score on economic freedom for a fourth straight year, according to the 2013 Index of Economic Freedom.
The 2013 index, released by the Heritage Foundation and the Wall Street Journal on Thursday, showed that Taiwan’s overall score rose 0.8 points to 75.2 points from the previous year.
Graded on a scale from 0 to 100, the overall score is computed by averaging scores of 10 sub-indices.
Despite its rising score, Taiwan saw its ranking among the 177 countries reviewed fall to 20th place from 18th place last year. It placed fifth among 41 Asia-Pacific nations.
The average score of all countries surveyed increased to 59.6 from 59.5 last year, with Hong Kong remaining the freest economy in the world, followed by Singapore, Australia and New Zealand.
South Korea was ranked 34th in the world, while China was ranked 136th and described as “unfree.”
According to the index, higher economic freedom can bring higher income growth, more entrepreneurial activities and greater job creation.
The index is compiled from several indicators, including freedom from corruption, business freedom, labor freedom, monetary freedom, investment freedom, financial freedom and government spending.
This year’s report showed that Taiwan’s labor freedom score rose from 46.6 points to 53.3 points. However, this increase means Taiwan has a relatively lower minimum wage and lower severance pay, and business owners can adjust employees’ working hours or fire them more freely.
Taiwan’s business freedom score, which rises as restrictions for starting, operating and closing businesses ease, rose 5.8 points to 94.3 points from a year ago because of ongoing simplification of registration procedures, the report said.
“Bankruptcy proceedings in Taiwan are fairly easy and straightforward,” the index said, adding that to start a company is also convenient and requires only a small amount of capital.
Taiwan’s score for freedom from corruption increased 3 points to 61 points this year.
“[However,] despite some progress, corruption continues to be a cause for concern,” the report said.
The score for fiscal freedom, which rises as the average tax rate drops, was up 0.1 points to 80.5 points for Taiwan this year. Taiwan’s average tax rate was reduced to 7.9 percent of total domestic income after the corporate tax rate was cut from 20 percent to 17 percent in 2010, according to the index.
Increased government spending played the most significant role in dragging down the overall score by dropping 7.4 points to 84.9 points, while the amount of government spending increased to 22.4 percent of GDP this year, the report said.
“The budget balance has fallen into deficit, and public debt is about 40 percent of GDP,” the report said.
Taiwan’s score for monetary freedom, which rises when inflation is lower and government price controls are rarer, decreased 0.2 points to 82.9 points, a reflection of rising inflation and increasing government intervention on prices.