Mon, Jan 16, 2006 - Page 8 News List

Editorial: When politics hurts the economy

The legislature completed its latest session on Friday, and there are reasons to be satisfied about the passage of certain financial bills. The passage of the Basic Income Tax Code (所得基本稅額條例), for instance, formally introduces the alternative minimum tax on high-income earners, and amendments to the Securities and Exchange Law (證券交易法) allow independent directors to sit on the boards of listed companies in an attempt to strengthen corporate governance.

Also passed were revisions to the Futures Transaction Tax Act (期貨交易稅條例) intended to spur futures trading in capital markets, and amendments to the Income Tax Law (所得稅法) that raise the tax-free annual salary deduction for married couples from NT$60,000 (US$1,875) to NT$88,000 -- eliminating the tax disadvantage of getting married.

The legislature also passed legal amendments that strengthen the health of the nation's companies. The reorganization chapter of the Company Law (公司法) has been amended to help speed up procedures for companies which want to restructure instead of declare bankruptcy. These changes will help open a window of opportunity for international investors to come into this market and turn around insolvent companies, which will benefit creditors, employees, shareholders and the economy as a whole.

But regrettably, other financial and economic bills haven't yet become law. Amendments to the Income Tax Law regarding warrant tax rebates were again prevented from being put to a vote. Since this tax problem has persisted for years and there are at least four different versions of amendments up for debate, major brokerages have recently stopped issuing share warrants in protest. Both administrative agencies and the legislature should work harder next session to solve this long-standing tax problem, which continues to hurt Taiwan's capital markets.

There is also concern about the government's banking reforms following a cut of NT$40.25 billion from the government's budget, which the government planned to gather from the release of its shareholdings in five state banks.

Although the Ministry of Finance has downplayed the impact of the budget cut, the privatization of banks such as the Bank of Taiwan and the Land Bank of Taiwan is sure to be further delayed, which means their competitiveness will not be improved. Moreover, without the capital injection from the sale of state assets, the government will find it more difficult to plug the hole in its budget, which has been caused by declining tax revenues in recent years.

Amid political bickering, the opposition-led legislature froze two annual budget proposals for the Examination Yuan and the Ministry of Civil Service. Some observers saw this as an indirect boycott of the government for scrapping the 18-percent preferential interest rate for civil servants, military personnel and public schoolteachers.

While the government has vowed to implement the new measure on Feb. 16 in the name of social justice, the budget freeze for the Examination Yuan and the Ministry of Civil Service could affect the employment and management of civil service personnel. People who are seeking career opportunities in the public sector could suffer, as the government's slashed budget could make it hard to hold national civil-service exams.

Thankfully, the legislature didn't repeat last year's spectacle of ending its last day with a marathon session extending into the wee hours of the morning. But this time around, as with a year ago, irresponsible political parties and lawmakers have used massive budget cuts and unreasonable boycotts of bills as tools for political revenge.

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