Government debt has already reached NT$3.1 trillion. With insufficient steady financial income, the future looks difficult. In 1989, the government debt stood at a mere NT$20 million, and there was a financial surplus, which means that the debt was decreasing. Ten years later, in 1999, government debt had reached NT$2.2 trillion, more than 10 times higher than in 1989. Another four years on, this has grown by almost 50 percent to NT$3.1 trillion.
Why are the finances of the government deteriorating? The answer is easy -- not enough income increases, insufficient expenditure cuts. Any three-year old knows this, yet government officials are incapable of achieving it. To increase income means to increase tax collection or tax sources.
Regrettably, the Legislative Yuan has passed a multitude of tax reduction and tax exemption laws over the past decade, inclu-ding the following taxes: the Entertainment Tax (1989, 1990), the Land Value Tax (1989, 1991, 1994), the House Tax (1992), the Land Value Increment Tax (1989, 1997, 2001), the Commodity Tax (1990, 1997), the Security Transaction Tax (1993), the License Plate Tax (1995), the Inheritance and Gift Tax (1995), the Income Tax (1990, 1994, 1998), the Deed Tax (1999), the Value-added Tax (1990, 1994, 1995, 1999), and the integrated individual and corporate taxes(1999).
This is what has created the current serious shortage in tax income. But each time the legislature has touched on the issue of raising taxes or abolishing tax exemptions, the result of the ensuing pandemonium has always been to abruptly postpone the issue. If this situation continues, how will it be possible to increase income?
Let's move on to expenditure cuts. Although Article 91 of the Budget Law (
In practice, however, that article has almost no legally binding power. Legislators often propose "money pit" legislation, but never take responsibility for its financing. What's more, Article 34 of the same law -- which stipulates that Cabinet plans for major public construction or major policy implementation shall include explanations of financing and use of capital -- is equally empty.
Politicians wantonly issue a lot of promises as long as they are pleasing to the ear (the 3-3-3 welfare project, the construction promotion, and the employment expansion plans). Even though financial officials know full well that financial resources are insufficient, they still have to "swallow their tears" and implement the project.
The deterioration of government finances is a political, not an economic, issue. However, once government finances have deteriorated, the nation's economic structures will be distorted, creating serious economic problems. In fact, financial officials have problems they cannot address. They cannot change the shortsightedness of politicians, but still have to clean up the mess resulting from the foolish acts of these shortsighted politicians.
Not doing a good job cleaning up would spell the end of these appointed officials. Doing a good job, however, is negative in that it paves the way for these politicians' efforts to curry favor with voters. Thus spoilt, politicians become even more reckless.
Former New York mayor Rudolph Giuliani used to say that "It is better to be respected than loved." He added, "But eventually people will love you," to encourage people to do things that win the respect of others. But the thought may never have crossed his mind that "eventually" may be too distant for a politician.
Cyrus Chu is a distinguished research fellow in the Institute of Economics at Academia Sinica.
Translated by Perry Svensson
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