Sat, May 21, 2011 - Page 8 News List

Financial policies offer no solutions

By Hsu Yu-fang 許又方

A series of recent financial and economic measures by the government have confused the public. Are these measures beneficial to Taiwanese or is the government attempting to survive by using next year’s resources now and ignoring the nation’s problems, hoping to delay dealing with them until a future time? To answer this question it is necessary to examine the measures.

Income tax was lowered by 1 percentage point in three tax brackets this year and the income tax for profit-seeking enterprises was lowered from 25 percent to 17 percent. As a result of these two measures, the government’s tax revenues are expected to shrink by more than NT$100 billion (US$3.48 billion). On the surface, tax abatement is a “benevolent policy” — since the wealth gap is constantly widening, lowering the tax rates for the poor can relieve the economic pressure on a lot of people.

However, according to data issued by the Ministry of Finance on May 7, the national debt per capita rose to NT$210,000 by the end of last month, and that figure continues to grow. The government’s fiscal deficit is gradually worsening, but our national leaders are not facing up to the problem. Instead they decided to raise the salary for military personnel, civil servants and public school teachers by 3 percent.

While this also could be considered a benevolent policy, the government will have to raise more than NT$20 billion to pay for its benevolence. The government is expected to issue NT$205.3 billion in debt next year to cover its expenditures.

From this perspective, both the tax cuts and pay raises offer only temporary benefits. If the government remains unable to increase revenues and decrease expenditures, the financial situation may deteriorate even faster. If that happens, the public’s minor benefits will be far less than the huge portion of the national debt they will have to shoulder.

Although saying that every Taiwanese owes part of the national debt is a figure of speech, because not everyone will necessarily have to help the government repay it, who is it that suffers the most when the government cannot improve public welfare because it is too heavily in debt?

Since the government lacks the funds to subsidize higher education, colleges and universities have repeatedly threatened to raise tuition fees in recent years. This year, many public universities have decided to raise the fees for student dormitories by up to 25 percent, while some publishers plan to raise the prices of primary and secondary-school textbooks by at least 10 percent.

Clearly, it is the general pubic that will have to sustain these added costs.

There are other examples of how one government measure saves a small amount, while another spends a lot. Not long ago, the legislature passed the Selective Goods and Services Sales Tax Act (特種貨物及勞務稅條例), better known as the luxury tax, to constrain high housing prices. According to experts, the law will cool down the housing market to a degree, but housing prices in northern Taiwan are still unreasonably high, far higher than any normal salary earner can afford.

Meanwhile, to help young Taiwanese who still have limited economic capacity to purchases their own housing, the government has announced preferential housing loans of up to NT$7.2 million for eligible young first-time home buyers, extending the payment of such preferential loans from 20 to 30 years.

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