Thu, Jan 27, 2011 - Page 8 News List

The truth behind the 18% interest

By Lin Cho-shui 林濁水

Now that all of Taiwan is up in arms over the benefit, they say it was because the civil servants in the past were poor. Yes, civil servants of the past were poor, but they are not now. To those poor civil servants the preferential interest rate meant a few extra thousand NT dollars every month. Between 2000 and 2005, the fat cats, exemplified here by former vice president and Chinese Nationalist Party (KMT) chairman Lien Chan (連戰), received an incredible NT$220,000 per month.

The civil servants who retired in the early years get very little out of the 18 percent rate. Their proportion of the more than NT$70 billion that pays for the benefit every year is very small. Most of it simply enriches those already rich officials who retired after 1995.

If this benefit really were used specifically to care for poor officials, then the sum would gradually diminish as their numbers dwindle. That, however, is not the case. In 2005, the cost of the benefit was NT$56 billion, already a frighteningly high figure, but last year, it had ballooned to NT$76.8 billion. It still hasn’t peaked, because it has been estimated that the treasury in the end will have to pay up to the astronomical sum of NT$6 trillion to cover the cost. That is why all these rich officials use “poor civil servants” as an excuse for keeping the 18 percent preferential interest rate to their own benefit, disregarding the impact on the treasury.

It is a display of complete disregard for laws and regulations to let these civil servants receive double salaries. A look at other countries shows that when a country is in financial difficulties, no one claims that these salaries cannot be cut because of the protection of some legitimate expectations. This is not the case for our neighbors, nor is it the case in the US or European countries. The income replacement ratio of 35 percent in Japan, 40 percent in Germany or 51 percent in France, for example, have all come down from 41 percent, 49 percent and 65 percent respectively. In Singapore and South Korea, pensions have been cut. Civil servants under the protection of the mighty KMT are the only ones whose benefits cannot be touched.

At the very least, the following adjustments have to be made.

First, those who retired in the early years and have a low income because they received a lump sum should be allowed to keep the 18 percent preferential interest rate. It would also be too problematic to remove the benefit from those who retired more recently with an income replacement rate of a bit over 80 percent, so they could also keep it, but with an upper limit on the income replacement ratio.

Second, no one with a monthly pension should be given the benefit.

Third, the income replacement rate for all those who receive the benefit based on these conditions should be limited to between 70 percent and 75 percent. This is still quite a good number when compared with other countries.

Lin Cho-shui is a former Democratic Progressive Party legislator.


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