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Hsieh, Ma offer little for economy

In the first televised election debate, the presidential candidates outlined their financial and economic platforms, both of which lacked vision and an understanding of economic theory.

Chinese Nationalist Party (KMT) candidate Ma Ying-jeou (馬英九) and the KMT camp tend toward Keynesian measures, which involve promoting economic growth with government investment.

This has been criticized by Democratic Progressive Party (DPP) candidate Frank Hsieh (謝長廷) and his camp, which say such measures would bankrupt the economy.

The government is already financially burdened and cannot fork out another NT$4 trillion (US$130 billion) in investment over the next eight years. For this reason, the Hsieh campaign proposes a financial and economic policy based largely on tax cuts and a package of Cabinet measures they call "benefit of the week."

Financial and economic policies that seek to bolster the economy by cutting taxes are supply-side economics. This approach is based on the idea that tax cuts increase the supply of labor, as it becomes more attractive to work, which in turn increases incomes and actually boosts tax revenue.

There is not, however, a lot of empirical support for this theory. Supply-side economics were adopted by US president Ronald Reagan's administration.

Known as "Reaganomics," the approach resulted in heavy government debt.

The nation is, in other words, faced with two options -- Ma with his Keynesian economics and Hsieh with his supply-side economics -- both of which will lead the government's already strained finances to deteriorate.

What the nation needs is a system based on economic monitoring and control.

The US International City/County Management Association (ICMA) developed the Financial Trend Monitoring System (FTMS), which monitors the US government's finances. The system involves economic and financial indexes that help the government foresee financial difficulties and develop measures to stave them off by dealing with the root of the problem.

FTMS covers 12 economic aspects. Each of these is in turn analyzed through a number of indicators, of which there are 28 in total.

For our government, implementing the economic monitoring indexes and setting up a financial index would be sufficient to ensure sound finances.

A government can find indicators reflecting the soundness of national finances by looking at demographic and financial factors.

Demographic indicators could be, for example, the number of people aged 65 and older and changes in the size of this population; changes in the number of people living below the poverty line; the unemployment rate; and fluctuations in the number of government officials.

It's obvious that when these indicators increase, they ratchet up the pressure on a government's finances.

The number of people aged 65 and older, for example, affects government expenses for pensions, while a high unemployment rate or number of people living below the poverty line means larger expenses on social welfare.

Ma is proposing a "negative income tax" as part of his platform, but this would only put more pressure on the state coffers. Ma and his camp should realize that the increasing number of government officials is the main reason government expenses will not ease.

As for financial indicators, one FTMS index involves calculating the rate of change in the government's deficit in relation to GDP. Government debts are an important indicator and can be divided into long-term and short-term debt.

Change in government expenditures not included in the general budget -- such as special budgets and spending on state-owned enterprises; changes in the government's spending on debt-interest loans as compared with total expenses; and the rate of change in tax revenue in relation to GDP are other indexes.

The government's budget deficit and outstanding debts have become issues it can no longer afford to ignore.

If these FTMS indicators are used, they should send clear warnings to politicians and officials when action is necessary. The establishment of indicators for expenses not in the general budget is particularly important because it prevents authorities from squandering funds on inappropriate or even illegal activities.

If a government's expenditures on debt interest steadily increase, this indicates that the nation's finances are not sound. Changes in tax revenue in relation to GDP, on the other hand, measure the soundness of a government's income.

The theory behind FTMS indexes is that sound national finances are key. By employing these tools, a country can gain a comprehensive view of its financial situation to guide financial and economic policy.

And above all, setting up such a system would be easy. With guidance from a panel of expert economists, such a system could soon be in place.

The biggest challenge in implementing this system of indexes would be getting our politicians and officials to respect it. Politicians can't simply dump these indexes when their bad policies start setting off warning lights.

Louis Liu is an assistant professor of public administration at Tamkang University.

Translated by Anna Stiggelbout
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