Taiwan’s stock market was tortured throughout last month by the uncertainty over then-minister of finance Christina Liu’s (劉憶如) proposal to introduce a capital gains tax on securities transactions, as well as President Ma Ying-jeou’s (馬英九) poor handling of the issue.
During that time, the bourse lost more than NT$2 trillion (US$66.82 billion) in value and in the week preceding Liu’s resignation, the TAIEX suffered the biggest loss of all the Asian stock markets: Trading volume on Monday last week — the day before Liu finally stepped down — was just NT$44.3 billion, its lowest level in 40 months. That evening, the Chinese Nationalist Party (KMT) legislative caucus finally presented its own version of the proposed tax, which turned out to be very different from the version proposed by Liu. Premier Sean Chen (陳冲) praised the KMT caucus for its “diligence” and said it showed the government had arrived at a consensus — as a result Liu was forced to announce her resignation.
Liu’s step-down shows that she has more guts than Ma, because Ma is the one who should really resign. It was Ma, after all, who said that the KMT caucus could discuss Liu’s proposal, but not block it. However, he did not indicate a bottom line for discussions. In the end, the KMT caucus came up with its own version of the tax, which would see individual investors having to pay only if the TAIEX rose above 8,500 points.
In addition, the KMT version included a so-called “dual-track system” — and other complicated conditions — meaning that the capital gains tax would exist in name alone. Nobody can be sure when, if ever, it will be imposed. Even if the tax can be applied at some point, the revenue it would generate is pitiful and would make no significant contribution to relieving the government’s mounting debt.
Ma and Liu presented the stock transaction tax under the banner of “fairness.” The problem is that Ma does not understand economics, still less finance. As to Liu, she is an academic and does not necessarily understand the inner workings of the stock market, especially the influence of big investors’ market manipulations. That is why her tax proposal was simplistic and ill-thought-out. When the proposal ran up against all kinds of obstacles and after public opinion turned against it, Ma stepped back from the brink and let Liu take the flak.
Ma doubles as chairman of the KMT and consequently has control over the party’s legislative caucus. The trio of King Pu-tsung (金溥聰), chief advisor of the KMT’s International Affairs Center, Vice President Wu Den-yih (吳敦義) and Legislator Lai Shyh-bao (賴士葆) are core members of the Ma team. During the capital gains tax debacle, Lai played a key role, and by not rejecting the KMT caucus proposal, Ma was able to extract himself from a sticky situation.
If Ma wants to prove that he has not been directing this drama from behind the scenes, he will have to follow Liu’s example by resigning. He must accept responsibility for the failure to push through a policy that was supposed to promote fairer wealth distribution — unless, that is, the reforms he is calling for are bogus.
If Ma cannot bring himself to resign as president, then at least he should resign from his post as KMT chairman. That would draw a line between him and the KMT caucus and make it clear that the version of the tax proposal put forward by the KMT caucus has nothing to do with him.