The government has gained some headway in reining in public debt, with the budget shortfall expected to drop this year as a record-high increase in tax revenues outpaces debt growth, the Ministry of Finance said yesterday.
The easing would give the government more room for debt financing to meet unforeseen spending needs if necessary, Minister of Finance Chang Sheng-ford (張盛和) said at a meeting of the legislature’s Finance Committee in Taipei.
The budget deficit is estimated at NT$158 billion (US$5.08 billion) for this year, down significantly from NT$209.1 billion last year, as the introduction of a feedback mechanism has started to pay off, the minister said.
Starting in July last year, the ministry raised business taxes on banking and insurance firms — from 2 percent to 5 percent, on a par with rates for non-financial companies — as the financial sector posted robust earnings in recent years and no longer warranted favorable treatment.
The tax hikes and other measures should boost overall tax revenues by NT$48.1 billion this year, a pickup of 3.8 percent from last year, ministry data showed.
As a result, cumulative public debt could drop by 0.3 percentage points to NT$5.54 trillion at the end of this year, or 36.2 percent of GDP, the ministry said.
The ratio is lower than the government’s 38.6 percent target and the 36.5 percent alert level the ministry set in its financial improvement package.
Public debt rules cap government debts at 40.4 percent of average GDP from the three previous years, meaning the government may borrow up to NT$700 billion if necessary, the minister said.
“The figures suggest the government has shown progress in cutting dependence on debts to meet spending needs,” Chang said.
Apart from tax hikes, an improving economy at home and abroad has lent a helping hand, the minister said.
There is still ample room for improvement given the big chunk of mandatory government expenditure that will stay in the absence of legal revisions, he said.
The ministry is seeking to introduce separate income taxes on gains from property transactions to help narrow the income gap.
The tax draft is still being fine-tuned, Chang said, after critics panned the proposed flat 17 percent tax and assorted exemptions as being too lenient.
The government has struggled to bring down public debt for years, with academics expressing concern about debt distortions caused by hidden debts that might strain the nation’s financial health if left unaddressed.
The ministry aims to increase tax revenues by NT$64.1 billion a year from next year and cut government expenditure by directing private funds to public construction projects.
Such joint ventures would help strengthen the state coffers and create job opportunities, the ministry said.
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