Take the central government’s general budget proposal for next year as an example.
The annual budget is NT$1.9446 trillion, yet legally mandated major expenditures have reached more than NT$1.3513 trillion, accounting for 69.49 percent of the yearly budget and leaving only slightly more than NT$593.2 billion that can be used freely.
One can gain a sense of how serious the situation is by looking at personnel expenses alone.
The government’s structure and bureaucracy is bloated. Apart from having one of the highest numbers of ministries in the world, civil servants account for 3.5 percent of the overall population. This is a much higher figure than South Korea’s 2.12 percent, Singapore’s 2.9 percent and Japan’s 3.18 percent — it is too high a proportion.
In next year’s government budget, personnel expenses are projected to be NT$425.8 billion. This represents 21.90 percent of total yearly expenditure and is approximately 15 percent more than in other advanced nations, such as those in the EU.
As a result, the budget for infrastructure projects has been crowded out and dropped from NT$299.6 billion in 2010, to NT$262.9 billion last year and decreasing still further to NT$185.1 billion this year. Next year, it is projected to be NT$175 billion.
With the budget for infrastructure projects shrinking each year, less and less funding will be available to spur economic growth. Government bodies exist to improve the public’s well-being and to encourage economic growth, but the worsening imbalance between fiscal revenue and expenditure has had the opposite effect: It has turned the government intoan entity solely capable of maintaining its own operation instead of serving the public.
Another indication of economic disintegration is a major loss in national competitiveness.
The economy took off thanks to the development of traditional manufacturing industries and contract manufacturing for electronic goods. However, the majority of these industries are weak in innovation, research and development, and branding, as well as being mostly focused on contract manufacturing and assembly.
If this does not change, Taiwan will forever be caught in a price war with emerging economies. This “race to the bottom” makes local businesses increasingly preoccupied with lowering costs, moving production bases to areas with ever-cheaper labor.
This in turn creates a situation in which businesses who have moved away from Taiwan become increasingly disconnected from the local economy and the revenue they make having little impact on the creation of employment opportunities, nor improving the wellbeing of domestic workers.
For example, Hon Hai Precision Industry Co is the world’s largest contract manufacturer for electronic goods, but its production base is in China, where it has created 1 million jobs. The Taiwanese side of its operations accounts for less than 1 percent of overall operations and so regardless of how great its financial reports may be, little of that money benefits Taiwan.
Deteriorating government finances, the risk of retirement funds going bankrupt, a loss of competitiveness among businesses and incompetent leaders means the nation faces problems somewhat similar to the “fiscal cliff” in the US, and the European debt crisis. These factors have also weakened the industrial structure and led to a lack of leadership.