The government is planning to draw up a special budget to raise the NT$82.9 billion (US$2.5 billion) needed to pay for the consumer vouchers it will issue next month as a provisional measure to stimulate the economy.
The voucher idea is, in my view, a good one, as it will help the economy and promote growth to some extent. However, the Cabinet has also announced that it will propose a special statute to get around restrictions stipulated by the Public Debt Law (公共債務法) and the Budget Law (預算法), allowing the government to borrow money to pay for the vouchers.
I believe this would seriously undermine fiscal discipline and send Taiwan’s economy from bad to worse, so I strongly advise the government not to follow this course.
The Public Debt Law stipulates that government debt must be controlled in terms of both stock and flow.
“Stock” refers to public debts accumulated by central and local governments in their general and special budgets, and in the form of extraordinary fund budgets beyond the operating and trust funds that remain outstanding after more than a year. The Public Debt Law states that such debt may not exceed 48 percent of the average nominal GDP of the preceding three years.
As to “flow,” the law stipulates that public borrowing at all levels of government may not exceed 15 percent of annual expenditure of both general and special budgets.
Answering questions from legislators in June, Minister of the Directorate-General of Budget, Accounting and Statistics Shih Su-mei (石素梅) said that the total on-the-books debt of the central government now stands at NT$4.4 trillion (US$131.7 billion).
She said that when borrowings associated with the high-speed rail, the Financial Stabilization Fund and other items are added in, the total debt would be in the range of NT$12 trillion to NT$13 trillion, which is roughly equal to 100 percent of the nation’s annual nominal GDP — far above the 48 percent allowed by the Public Debt Law.
The Budget Law states that: “Current revenues and expenditures of the government shall be balanced. Unless due to abnormal conditions in the budgetary fiscal year, capital revenue, government bonds and borrowing, as well as surplus from the previous fiscal year, shall not be used for current expenditures.” Although the domestic economy is slowing, conditions are still far from abnormal, so the exception referred to in the law does not apply.
Without doubt, the proposed government issue of consumer vouchers to stimulate public consumption comes under the category of current expenditure. The law provides only for funding from current revenues like taxation and official charges and fees.
Taiwan’s financial difficulties arise from the fact that current expenditure in budgets over the years has only just been covered by current revenue. That being the case, there could hardly be any surplus funds available to pay for the consumer vouchers. Moreover, documented and undocumented debts already exceed the limits defined by the Public Debt Law.
There are only two ways to get around such limits — amending existing laws or passing special statutes. In the case of Taiwan, the government has used both.
Since its implementation in 1996, the Public Debt Law has been amended twice, once to exclude self-redeeming public debt from the category of outstanding debt, and again to exclude taking out new debts to pay off old ones.
In recent years, the government has drawn up laws to avoid the restrictions of the Public Debt and Budget laws every time it has compiled a special budget. Examples include the Temporary Statute for 921 Earthquake Post-Disaster Reconstruction, the Special Act Governing the Management of the Keelung River Basin, the Special Statute for Expanding Investment in Public Works and similar measures relating to the SARS crisis and civil engineering on the Shihmen Reservoir.
In each of these cases, a special law was passed to provide exemption from the Budget Law’s ban on using government bonds and borrowing for current expenditures and the Public Debt Law’s limits on annual borrowing.
These special statutes have all cast aside the limitations of the two existing laws and are the main reason why Taiwan’s outstanding debts are so high and keep climbing year after year.
The government should refrain from drawing up special laws to get around the limits. If such a law is indeed proposed, the legislature should not pass it, otherwise our children and grandchildren will suffer for our lack of fiscal discipline.
It would be more suitable to pay for the consumer vouchers by selling shares in state-owned enterprises or diverting funds from annual budget surpluses. Unfortunately, neither of these options can be easily achieved under present circumstances.
Given the global financial turmoil, Taiwan’s stock market has also suffered. Selling shares in state-owned companies would have a big negative effect on an already listless stock market and selling shares at current low prices would generate less revenue for the national treasury than would otherwise be the case.
The remaining surplus for the current fiscal year, as recorded in the budget proposal for next year, is NT$12.02 billion, which is not enough to cover the enormous expenditure required for the voucher issue. Besides, the annual surplus is calculated on an accrual basis and so makes allowance for public facilities that can be offset against taxes, shares in companies that are in difficulty, etc, which makes disposal and realization of the surplus very difficult.
A more practical approach would be to implement budgetary economies, as the central government has done on many previous occasions, and with some considerable success. This can be achieved by freezing undistributed budgets remaining with various agencies and paying them directly to the national treasury.
To put it another way, this means diverting funds from government expenditure to pay for public consumption. As for stimulating the economy, it makes little difference whether the money is spent in the public or private sector. In the public’s perception, however, there is a big difference. Freezing non-essential spending by government agencies, such as overseas visits, publicity, hospitality and gift purchases, and diverting the funds for such activities to the public to spend on consumption, could give a much-needed boost to the government of President Ma Ying-jeou (馬英九), whose public approval is currently at a low ebb.
Unfortunately this year will come to an end in less than a month. The government had better get on with finalizing and implementing its policy if it wants to convince the public that it is really committed to reform.
Juang Jenn-huei is an associate professor at Kainan University’s Department of Accounting Information and former deputy director of the Budgetary Research Center of the Legislative Yuan.
TRANSLATED BY JULIAN CLEGG
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