The National Audit Office’s report on the final accounts of municipalities, counties and provincial cities for last year, which was published on Nov. 22, says that local governments’ expenditure on personnel expenses amounts to as much as 114 percent of their own-source revenues. So their tax revenue is not even enough to cover their manpower expenditure.
The National Audit Office has identified the hidden debt of the nation’s 20 municipalities, counties and provincial cities, (excluding Kinmen County and Matsu, which come under the Republic of China’s Fujian Province) as totaling NT$313.7 billion. This figure does not include NT$3.1681 trillion in future pensions for local government employees, or the more than NT$32.8 billion cost of making up the difference between the preferential interest rate on retired government employees’ pension funds and the commercial rate, or the more than NT$120 billion in arrears on labor, national health and employment insurance subsidies.
These financially disastrous payments and benefits for military personnel, civil servants and public-school teachers also crowd out funding for much-needed economic construction, thus reducing the vigor of economic growth. Devoting too many state and social resources to government employees has caused central and local government expenditure on economic construction to fall year by year. Add to this the cautious attitudes and wealth management habits of retired government employees, and this has led to the phenomenon of Taiwan’s national savings rate growing as the years go by, which has detracted from overall investment and consumption, and in turn has caused a loss of drive in the economy as a whole.
Excessive pay and benefits for government employees are causing a double disaster in the widening gap between rich and poor, and confrontation between different social strata. First there is the deepening conflict between the average worker and government employees. Second, the nation’s legal framework does not treat the older and younger generations equally in terms of employment and opportunities, with the result that many young people are jobless and drifting. Young people are losing faith in society, and depression is much more prevalent among young people aged between 20 and 30 than other age groups.
Military personnel, civil servants and public-school teachers have the job of safeguarding the nation and society, educating people and promoting the public good, and they are legally obliged to make certain sacrifices. In accordance with the needs of the division of labor in society, giving state employees reasonable salaries, welfare benefits and retirement rights that befit their dignity and rank are necessary conditions for the normal functioning of the social system.
However, state employees today enjoy a number of excessive payments and benefits that lack any legal basis and are not truly fair, and these are leading to a major fiscal, economic and social disaster.
One remedy that the government could apply straight away would be to set the interest rate on retired government employees’ pension funds at 5 percent above the consumer price index, instead of the current fixed subsidized rate of 18 percent. This step would lighten the state’s financial burden considerably, and it would uphold fairness and justice. This step should be taken without hesitation or reversals. The decision should not be put off until next year, as that would cause even greater and more prolonged unrest in society.