The newly elected mayors of Taiwan’s five special municipalities were sworn into office last Saturday. Now that they have taken up their posts, they face enormous debts adding up to about NT$500 billion (US$17.4 billion). Worse, some of the cities may find that the funds allocated to them by the central government are much less than they expected. That means that they will have to go back to the old pattern of asking the central government for subsidies and taking out further loans just to get by. This state of affairs clearly runs contrary to one of the original ideas behind upgrading cities and counties to special municipalities, which was to enhance local governance and improve the cities’ global competitiveness.
Following the municipal mergers and upgrades, the most important task is to enhance the fiscal autonomy of the special municipalities, so as to make local governance a reality.
Taiwan’s existing system of local autonomy was broadly laid out 60 years ago, but it was never put into practice because of the influence of an authoritarian system that prevailed for a long time. The central government never granted financial autonomy to the localities. In fact, when the Taiwan Provincial Government was downsized, its revenue from business tax and other local taxes was turned over to the central government, making local governments even less autonomous financially than they were before, and putting local governance even further out of reach.
According to figures for last year compiled by the National Treasury Agency (國庫署), apart from Taipei City, whose independent sources of revenue covered 78 percent of its annual expenditure, the average figure for other cities and counties in Taiwan was only about 47 percent. Even for Kaohsiung City, which was already a special municipality before the recent upgrades, the figure was only about 50 percent. In fact, 15 cities and counties did not even have sufficient independent revenue to pay their own personnel.
The root cause of this problem is the paternalistic authoritarian mindset emanating from the central government. By keeping local governments dependent on handouts of “expenses” earmarked for specific purposes, in the form of general subsidies and project-based subsidies, the government seeks to keep control over what local governments are doing. The central government sees the localities as children who will never grow up, so it won’t allow them to have fiscal autonomy. When the central government has such an authoritarian attitude, it’s no surprise local governance never gets off the drawing board.
Following the upgrades, the powers and responsibilities of special municipality mayors have grown, as have their expenditures. This calls for a total makeover of the existing practice of providing subsidies for specific purposes, so as to give local governments real fiscal autonomy and make the idea of local governance a reality. If the central government really wants to give the country a boost, the first thing it needs to do is make Taiwan’s cities more competitive, and the starting point for that is to increase their financial autonomy. The best way to achieve this would be to increase the overall amount of funds allocated to local governments by the central government, and to allocate them according to an established formula, while at the same time cutting down on general subsidies or abolishing them altogether. General subsidies leave too much room for uncertainty and do not help cities to improve their global competitiveness in the long run. On the contrary, reliance on subsidies puts cities in fear of being marginalized year after year, and runs contrary to the original core purpose of upgrading to five special municipalities.