Wed, Feb 08, 2012 - Page 8 News List

EDITORIAL: Energy pricing represents major test

Everything is returning to normal after the elections and now that the nation has a new Cabinet, it is incumbent upon the Cabinet to address critical issues that were temporarily put on hold, or intentionally distorted, during the election campaign. The most pressing of these issues are US beef imports, tax reform and rising electricity and oil prices. However, the latter — rising energy prices — is most likely to be the first challenge the new Cabinet has to deal with.

According to free-market principles, the nation’s energy prices should directly reflect market prices, as determined by supply and demand as well as international crude oil prices. However, before the election the government distorted the market, fearing that rising prices would cost President Ma Ying-jeou (馬英九) votes as the electorate ran into the arms of Tsai Ing-wen (蔡英文), the Democratic Progressive Party’s (DPP) “Robin Hood” candidate. This was the reason behind the government’s “frozen price” and “halved price increase” policies.

Now that the elections are over and the government no longer has to worry about votes, utility prices are going to fluctuate and a “reasonable price” will have to be set. However, how do you decide what is “reasonable”? Naturally, “reasonable” should mean reflecting the international oil price, even if this means the government swallows a huge loss for subsidizing CPC Corp, Taiwan and Taiwan Power Co prior to the election. However, when the government talks of “reasonable pricing,” it is talking about a price hike.

Free-market economic theory says that price increases should be borne by the end user. There is nothing wrong with that in principle, but the question is, who is the end user in this instance? Normally, the answer would be the public, but really it is the nation’s large industrial companies that take the lion’s share.

So, while the public, who account for a relatively small amount of the total energy used, face the burden of having rising prices passed on to them, the nation’s big corporate users benefit from government subsidies in the interest of “promoting economic growth” and “encouraging investment.” And who is footing the bill for these subsidies? The taxpaying public, of course.

How did it get to be like this? Well, election-eve endorsements for Ma from the bosses of these firms could not have hurt. They had the power to swing the election in his favor and it was a favor they wanted to see returned. Had the government not offered the carrot of encouraging investment, the nation’s corporate elite might well have moved their investment and factories overseas, saying that Taiwan no longer offered a competitive environment in which to invest.

Taxes paid by salaried workers account for about 72 percent of all income tax in Taiwan, one of the highest ratios in the world. However, when the notion of taxing the wealthy appeared in the media, Ma was quick to speak on behalf of the rich, saying that top income earners already account for 47 percent of tax contributions, with revenues from Taipei’s Xinyi District (信義) equating to three-quarters of the entire tax revenue from Greater Kaohsiung. After Ma’s statement, interest in tax reform dissipated, allowing new Minister of Finance Christina Liu (劉憶如) to pass the hot potato to the Cabinet. The tax reform Ma promised before the election is likely to go the way of tax reform in the past.

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