The Directorate-General of Budget, Accounting and Statistics said GDP grew by 0.12 percent last year — a far cry from its forecast of 4.3 percent — and predicted the economy would shrink by 2.97 percent this year. However, this year’s central government budget is based on a 5.08 percent growth rate, 8 percentage points higher than the forecast. The chance that annual revenues will reach NT$1.7 trillion (US$48.6 billion) appears impossible, however, prompting the opposition to propose cutting the budget. Its pleas are likely to fall on deaf ears.
Two articles in the Budget Act (預算法) stipulate measures to prevent a major financial crisis in case a special event or drastic change in the economic situation causes revenue to fall below spending. Article 71 states: “In the course of budget implementation, if a special event in the nation occurs that makes it necessary to reduce the budget allocations, reduction of the budget may be conducted by a presidential order subject to a resolution by the Executive Council of the Executive Yuan.”
Article 81 states: “In case there is an unusual special shortage of legal annual revenues for which Article 71 hereof is not applicable, the competent central finance agency shall make plans to offset the shortage and the Executive Yuan shall make adjustments by increasing or decreasing the budget.”
“An unusual special shortage of legal annual revenues” is a “special event” within the meaning of the act. Since this year’s budget bill is already under consideration by the legislature, the Cabinet should introduce a proposal to reduce the budget.
Expenditures could be streamlined by the Cabinet cutting or freezing annual expenditures. Such a move would not require legislative approval. Budget cuts, however, must be decided within the legislative process and must include adjustments to annual expenditure items.
Minister of Finance Lee Sush-der (李述德) says the shortfall problem should be dealt with by shifting resources. He said last year’s non-appropriated budget surplus of NT$24.8 billion and the NT$165 billion in government debt issued this year could be used to that end. But this would be difficult. The shortfall will be too big to be covered by simply shifting resources. In addition, since the Cabinet has been spending a lot of money to resuscitate the economy, using a shortfall in annual revenue as the rationale for cutting expenditures or the budget appears ludicrous.
The Democratic Progressive Party (DPP) said predictions that the economy will contract by 2.97 percent this year are too optimistic. Its estimates show a NT$200 billion shortfall in annual revenue, hence its recommendation for a budget cut. While the DPP’s suggestion was founded on expert and legal considerations, the Cabinet should be asked to cut expenditures before it tries to slash the budget.
The DPP is advocating a stable and healthy budget system and financial policies, which should be the goal of any country looking for consistent calm and prosperity. Regardless of the merits of the DPP’s case, opposition attempts to influence the budget review or budget cuts are unlikely to succeed, given the Chinese Nationalist Party’s (KMT) legislative majority. However, if the KMT ignores the consequences of the deteriorating state finances, its government will have to bear the responsibility.
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