After much patient negotiation over the US’ “fiscal cliff” — an issue with potential global implications — between the Republican Party and US President Barack Obama’s Democrats, the two sides reached an agreement in the early hours of Jan. 1 this year, when the US Senate passed a bill that included increasing taxes for high earners and postponing previously mandated automatic spending cuts for another two months, a period that was later extended by another four months.
After the bill was passed, it had an immediate impact on the US economy, and the next day the Dow Jones closed up by more than 300 points.
The main reason the US faced this “fiscal cliff” was that a set of tax cuts put in place by former president George W. Bush to stimulate the economy were set to expire on Jan. 1, while a set of government spending cutbacks would have automatically kicked in.
These factors may have led US businesses to hire fewer workers, while also decreasing investment that would be beneficial to the economy.
In particular, the automatic spending cuts could have very quickly wreaked havoc on US finances which is why US Federal Reserve Chairman Ben Bernanke referred to the phenomenon as a “fiscal cliff.”
It could be said that Obama won the standoff over the “cliff.” In the end, his administration convinced Republicans to support the tax increases on the rich — individuals with an annual income of more than US$400,000 or households with a combined annual income of US$450,000 — while also extending and continuing social welfare and medical expenditure and taking initial steps toward building an economy based on the principle of fairness.
Coming back to Taiwan, its national finances are threatened by a huge national debt.
Since coming into office in May 2008, President Ma Ying-jeou (馬英九) has issued more than NT$1 trillion (US$34.2 billion) in public debt, faster than under former presidents Chen Shui-bian (陳水扁) and Lee Teng-hui (李登輝).
In addition, in 2011, before it was clear whether the economy had recovered or not, Ma increased salaries for civil servants, and after his re-election last year he pushed through policy measures such as raising electricity and fuel prices, a capital gains tax on securities transactions and supplementary premiums on National Health Insurance.
He ignored suggestions to increase the minimum wage, which resulted in growth stagnating across industries, workers losing their jobs and increased friction between social classes.
These actions ignored the principle of fairness and have put the government’s finances in severe jeopardy.
The reason for Taiwan’s current economic crisis is that Ma fully believes in outdated and misguided ideas.
He has no clue how to handle the worsening financial situation and social unrest, and has wasted the chance Taiwanese gave him by re-electing him and giving him a legislative majority; an issue that doubles the public’s pain and resentment.
In order to solve problems with the current pension system for military personnel, civil servants and public school teachers, the Labor Insurance Fund, national debt, the tax system, the unfair division of financial expenditure and the reform of state-owned enterprises, the opposition parties should be invited to discuss them at a national affairs conference.
These problems are matters that Ma should give serious thought and consideration to, and it would be no bad thing if he took a page or two out of Obama’s book when working out how to solve them.
Tsaur Tien-wang is a professor of economics at Soochow University. Tzeng Shian-jang is a doctoral student in the Graduate Institute of Economics at National Taipei University.
Translated by Drew Cameron
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