Sun, Nov 04, 2012 - Page 8 News List

Financial pain divides generations

By Jai Ben-ray 翟本瑞

We all think that tomorrow will be a better day and that if we can make it through today, all our problems will be gone. However, the fact is that if we go on for another day, everything will just get worse.

According to media reports, there are major discrepancies between income and expenditure in the Labor Insurance Fund and it may go bankrupt by 2027. As the news spread, workers panicked and the Cabinet discussed how to prevent the fund becoming insolvent. This was followed by the revelation that the farmers’ insurance system is also experiencing problems and that by July it had accumulated a deficit of NT$136.8 billion (US$4.68 billion).

However, an even bigger problem is confronting the insurance scheme which underpins public education, the military and the civil service. It is only because the government guarantees these insurance schemes that the size of the problem has still not been fully understood.

The crux of the problem is that insurance premiums are too low, that retirement ages are too low, that payments are made for a long period of time and that the payments are too high. This has led to a situation in which tomorrow’s income is spent today.

In terms of average retirement age, military personnel retire when they are 43.2 years old, while civil servants and public school teachers retire at 55.52 and 53.87 respectively.

However, average life expectancy is increasing and on average military personnel are paid 8.29 times more than they contribute, civil servants 5.43 times more and public school teachers 5.97 times more. Where does all that extra money come from? If it is not paid into the system by those who are still working, then it is paid by the government — which of course means that it is paid by everyone in Taiwan via taxes.

This is the same principle that drives a Ponzi scheme, but unfortunately this is a true representation of Taiwan’s current retirement system.

Can the government make up for the current deficits? It seems unlikely that any government would be able to fill such a huge hole.

Based on the central government’s 2008 budget review, Chinese Nationalist Party (KMT) Legislator Lu Shiow-yen (盧秀燕) used the IMF’s and the Organisation for Economic Co-operation and Development’s standards for accrual basis accounting and calculated that the pension system for military personnel, civil servants and public school teachers has major hidden debts which — when coupled with labor insurance and farmer’s insurance deficits — amount to a national debt of NT$19.7221 trillion.

In 2009, the general budget debt stood at NT$165 billion, tax reduction debt at NT$150 billion, consumer voucher debt at NT$85.6 billion, expanded public construction debt at NT$149.1 billion and flooding administration debt at NT$30.3 billion — all in all a grand total of NT$580 billion.

In 2009-2010, central government debt climbed to NT$1.877 trillion. This all represents government debt that will have to be shouldered by future taxpayers and now stands at more than NT$20 trillion — or almost NT$1 million per capita.

Of course this problem is not limited to Taiwan. According to the British weekly magazine The Economist, UK baby boomers have used up all the welfare benefits which will lead to a “generational squeeze” — a serious clash between the needs and benefits of the younger generations and their older counterparts.

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