Democratic Progressive Party (DPP) Chairman Su Tseng-chang (蘇貞昌) and former DPP chairperson Tsai Ing-wen (蔡英文) recently suggested that President Ma Ying-jeou (馬英九) convene a national affairs conference in the hope that the ruling and opposition parties could meet with representatives of various sectors of society to discuss reforming the nation’s public pension systems. Ma rejected the proposal.
Ma’s incompetence is common knowledge, but even people within the pan-blue camp think it unwise to refuse to convene a national affairs conference. This is because if the nation’s pension funds are not reformed they will go bankrupt.
Additionally, the way the current system unreasonably favors certain social groups has not only placed a serious financial burden on the country, it has bred class antagonism.
These issues require collective wisdom to be solved and cannot be solved by one political party or by one person, no matter how gifted they are.
Rejecting Tsai’s suggestion not only means missing an opportunity for reform to be carried out jointly by the ruling and opposition parties, it also means that it will be very difficult to revamp the pension system.
Taiwan’s finances and economy are riddled with problems and are almost beyond help. The challenges and tests that lie ahead are no less daunting than those facing any other country, including the PIGS economies — Portugal, Italy, Greece and Spain.
One of the manifestations of these problems is that the national fiscal deficit is a structural problem, meaning that new debt must be issued annually simply to repay current debt.
For example, next year, NT$205.681 billion (US$7 billion) will be required to repay loan principals and interest on government debt. That is 10.53 percent of the normal budget and the special budget. This means that more than 10 percent of central government expenditure will be used to repay debt.
In addition, the repayment of loan principals will be financed by issuing more debt, causing a vicious cycle of issuing debt to repay debt, which of course means the total amount of debt just keeps increasing.
However, the days when the government can keep engaging in this cycle are numbered. At the end of this year, the government’s unpaid long-term debt will, for the first time ever, exceed NT$5 trillion. By the end of next year, it will increase to NT$5.27 trillion, amounting to 37.1 percent of the three-year average GNP.
This is extremely close to the legally allowed upper limit of 40 percent, and only leaves room for the government to issue another NT$400 billion to NT$500 billion of debt.
If hidden debt and money borrowed from non-profit funds are added, overall debt is nearing NT$22 trillion, almost 150 percent of GDP and close to Greece’s debt, which stands at 165 percent of GDP.
Taiwan, could very well become the Asian version of Greece. However, Greece has the active support of the eurozone member states, the European Central Bank and the IMF.
Who could Taiwan turn to for assistance if it suffered a sovereign debt crisis?
Apart from the problem of the fiscal deficit, the government’s budget allocation is becoming increasingly rigid, with the vast majority being allocated to low-productivity statutory budgets such as personnel costs, benefits and retirement funds, instead of being used to spur economic development.