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Debate over tax reform can benefit the country

Criticism has yet to abate over President Chen Shui-bian's (陳水扁) announcement that the government would increase the overall tax burden on the general public. Many believe that the government should not attempt to bring down the growing budget deficit by raising taxes. In financial theory, tax hikes are not necessarily a bad thing, so we should not simply reject this proposal.

Based on the principles of financial management, the major difference between personal financial management and public financial management is that the former is based on income and the latter on expenditure. If a person spends more than he can earn, the result will be a financial crisis or even bankruptcy. Therefore, spending must be constrained by income.

Conversely, public financial management emphasizes the legality and necessity of public spending, and a lack of revenue is not a sufficient excuse for delaying public spending measures. For example, the government cannot deny children's right to education on the grounds that the government does not have the budget for a national compulsory education program. If expenditures on education are held back due to a lack of revenues, this will affect the level of education of the nation's citizens.

Similarly, the government cannot reduce investments in infrastructure on account of a lack of funds: National economic development would bear the brunt of such cutbacks. Therefore, revenue should not limit how much a government will invest in the nation.

A nation's expenditures should be regulated by the rule of law, supervised by the legislature and controled by an auditing mechanism.

If close scrutiny of a budget has been conducted and the government finds it necessary to spend such a budget, the financial divisions within the government will be responsible for seeking the money for such budgetary needs. As to how to collect the sum needed, it would be a question of how to ensure a fair allocation of the burden.

As long as there is a need for an expenditure, the government can fund it by levying taxes, issuing bonds or selling national property.

However, issuing bonds is tantamount to passing the debt on to the next generation, and selling national property is no more than squandering our ancestors' inheritance. Although these two approaches are less likely to provoke a backlash among the general public, they are not necessarily to the people's advantage. Thus, a responsible government should ensure revenue for public expenditure by levying tax.

Although Chen's decision to increase the tax burden has drawn criticism, there is nothing wrong with using this method to ameliorate the nation's financial situation.

If Chen chose instead to issue bonds or sell national property, there would probably be few complaints, but this does not free the people from bearing a financial burden.

Therefore, the idea of increasing the tax burden is not a sin; rather it is a more straightforward approach that lets people have a clearer sense of the burden they are under, compared to the issue of bonds or the sale of national property.

If discussion over tax increases can make people more aware of the nation's financial burden, and draw attention to the necessity and efficaciousness of government spending, as well as the fair distribution of the tax burden and whether or not our legislators are properly supervising government spending, then surely this is beneficial.

Lai Chen-cheng is the dean of general affairs at the National Taipei College of Business.

TRANSLATED BY DANIEL CHENG
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