Mon, Nov 21, 2005 - Page 8 News List

Welfare is the victim when votes are involved

By Wang Yun-tung 王雲東

As the election campaign heats up, the governing and opposition parties are using additions or cuts to social welfare for certain groups as a campaign tool.

One example of this is the legislative Economics and Energy Committee's unanimous passage last week of a resolution to amend legislation to increase the subsidy paid to retired farmers from NT$4,000 to NT$5,000 per month. With an estimated 710,000 farmers benefiting from the measure, government expenditure will increase by NT$8.4 billion (US$250 million) per annum.

Last Monday, the Examination Yuan passed strict measures in cutting the 18-percent preferential interest rate for government retirees despite some of its members leaving in protest.

In other words, the pension replacement rate for civil servants below the 12th rank will be between 85 percent and 95 percent of their original salary. It is estimated that this will affect over 300,000 retired soldiers, civil servants and teachers. Civil servants, for example, will see their pensions cut by NT$5,000 to NT$15,000.

First, we must ask why -- if the subsidy to retired farmers really does fall short by so much and if soldier, civil servant and teacher pensions really are too high -- it is necessary to wait for an election to adjust pensions.

In the end, it seems, this has little to do with offering welfare to the public. Lofty words and actions are only performed to win more votes.

Second, the provision of welfare must follow the principle of caring for disadvantaged groups and spending the money where it is needed. No regulations eliminating wealthy recipients have been attached to the subsidy to retired farmers, however, which means that limited resources may be wasted on relatively wealthy retired farmers.

The Council of Agriculture's budget for next year has allocated NT$3.41 billion to retired farmers, but following the legislature's amendment to the law, this amount will increase to NT$4.25 billion. We have to ask if such massive expenditure should not take into account the economic situation of the recipients.

Third, there is in principle nothing wrong with referring to the pension replacement rate when considering the preferential interest rate. The problem lies with the speed with which society is changing. This has meant that the 18 percent rate that was acceptable in the past -- in an environment of high interest rates and low salaries -- is ridiculously high in light of today's low interest rates and relatively high salaries.

This situation is similar to the implementation of social security in the US. When the first social security system was implemented in 1935, no one anticipated that the proportion of elderly people would increase with such speed, nor was the economic situation stable throughout.

During times of economic difficulty, the US government's promise was put to the test. It managed to adhere to the principles of small change and avoiding retroactive changes, and as a result, it continued to enjoy a high level of public support.

It is very important for the government to build credibility. A vast majority of the public hope that the system with a lump-sum payment will remain in place rather than be changed to a system of annual payments.

Although annuities are a better way of stabilizing income, most people prefer lump-sum payments because they worry that they will not receive annual payments in future.

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