Participants in preparatory meetings ahead of the Conference on Sustaining Taiwan's Economic Development have just finished another round of heated debate. Though exhausted, they appeared upbeat about the conference, which is scheduled for late next week. The event aims to map out an economic blueprint for the nation to take it into the next decade.
While well-intended, the objective of the preparatory talks was totally unrealistic. Heated discussion has characterized the agenda negotiations and there has been little agreement on what the conference should address.
Consider the past week. Some participants were threatening to boycott the conference altogether if the government refused to accept their suggestions. Several of the people involved were shouting at each other on issues ranging from environmental protection to taxation, while others were under strong political pressure to turn the proceedings into another protest against the Democratic Progressive Party (DPP) government and President Chen Shui-bian (陳水扁).
It was also unsurprising to find that administrative quarrels were part of the conference negotiations. An intense debate between the Ministry of Economic Affairs and the Ministry of Finance broke out on a wide range of taxation matters, such as the imposition of business income tax on undistributed surplus earnings and the extension of tax exemptions to the so-called "emerging strategic industries."
Tax exemptions or tax cuts are commonly seen in countries that promote supply-side economics solutions to their economic problems. This approach holds that concentrating on the input side of the economy rather than demand will stimulate long-term business investment.
But in truth, the government is trying to increase tax revenue, not reduce it. This is part of its bid to balance the national budget by 2011; the deficit is projected to reach NT$260.7 billion (US$7.8 billion) this year and the nation's aggregated debt exceeds NT$4 trillion.
The continuing deterioration in the government's fiscal situation has raised eyebrows at both Standard & Poor's and Fitch Ratings, who have warned that they may be forced to downgrade the nation's sovereign credit rating if the problem isn't addressed.
Therefore, no matter how important tax cuts may be to Taiwan's economic development, the finance ministry expressed clearly its stance last week that it is unfair for companies to enjoy tax exemptions in perpetuity and that the nation needs a review of the existing mechanism for tax incentives stipulated by the Statute for Upgrading Industries (促進產業升級條例) -- which has been in place since 1991 and will expire in 2009.
Besides these key taxation issues, sharp differences in the preparatory negotiations occurred on issues such as the application of labor law to the service sector, on funding for care of the aging population and on whether Taiwanese companies seeking to invest in China should be allowed to invest more than the current ceiling of 40 percent of their net value.
While we might hope that the participants in next week's conference would narrow their differences through reasoned debate, it is hard to believe that that they would suddenly come to agreement. Given the nation's deep polarization, it is perhaps too much to expect that a constructive exercise like the conference will produce much-needed changes in the nation's economic policy.
But we choose to live in hope, and strongly support the attempt to address the nation's economic problems.
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