Last month, the Directorate-General of Budget, Accounting and Statistics (DGBAS) released last year’s survey of household incomes and expenses.
In his capacity as Chinese Nationalist Party (KMT) chairman, President Ma Ying-jeou (馬英九) said that the nation’s current income gap is the smallest it has been in more than a decade, but this is not true.
Although household income data is often used to measure the gap between the rich and the poor, the measuring method is questionable, and it has been suggested that the DGBAS should replace household data with taxation or some other data.
The government does not have a clear and complete set of statistics, so the income gap polarization must be concluded from tax information, statistics on national wealth and the structure of GDP distribution.
Regarding the DGBAS’ reliance on household income and expense statistics, Ma said that the data is collected from more than 7 million households, while tax data only is based on more than 5 million households, therefore the statistics based on household income and expense data should be more reliable.
However, what he did not say was that the household data is based on survey samples, and that the studied samples only consist of 15,000 households from the total population. This means that it is actually much less reliable than the tax information data.
Let us examine the figures that the Ma administration chooses to ignore.
Ma said that the tax data does not consider government transfer payments, but to truly understand public hardships the effect of such transfer expenditures must be excluded. Government transfers refers to social welfare payments such as relief payments, subsidies, grants and other payments for low-income households and unemployed people.
Taiwan is not a welfare state like the advanced European countries with high tax rates. The greater the government transfers, the greater the effect on the less affluent. This means that the Ma administration is using taxpayers’ money to cover for his policies that favor the rich. Looking at the impact of transfer payments between 2000 and last year, we see that the five years with the largest income gap have all occurred during Ma’s rule. If we look at the impact of social welfare transfer payments, four of the five biggest increases have also occurred during Ma’s time in office.
The average annual household disposable income last year was NT$942,000 (US$31,295), which was NT$18,000, or 1.9 percent, higher than the figure of NT$924,000 in 2007, during the Democratic Progressive Party’s (DPP) rule.
However, the average annual consumption of every household was NT$748,000 last year, which was NT$32,000, or 4.5 percent, higher than the figure of NT$716,000 in 2007. That means that 2.6 percent of the disposable income per household evaporated, on top of the average income regressing during the same period.
Last year, the average annual individual disposable income was NT$294,000. That was NT$21,000, or 7.7 percent, higher than the figure of NT$273,000 in 2007.
However, last year, the average annual consumption per capita was NT$233,000, which was NT$21,000, or 9.9 percent, higher than NT$212,000 in 2007. That means that 2.2 percent of individual disposable income vanished.
This gap might mean nothing to the rich, but it is a heavy burden for those on the bottom rung of the financial ladder.
Comparing last year’s consumption per capita with that of 2007, an increase of NT$58 is evident — the cost of a cheap lunch.
According to data from the Ministry of Health and Welfare, when the DPP administration was replaced by the KMT government in the second quarter of 2008, there were more than 80,000 low-income households accounting for about 200,000 individuals.
However, these numbers quickly increased after the Ma administration took over the reins. By the end of last year, the number of low-income households had increased by 69.5 percent to almost 150,000, accounting for 360,000 people, an increase of 72.31 percent. It is clear that the number of people living below the poverty line has increased dramatically.
The income gap between the nation’s richest 5 percent and the nation’s poorest 5 percent has increased from 60.4 times to 85.2 times since the Ma administration came to power. At its highest, it reached as high as 96.8 times. The income gap shrunk for the first time in 2012, probably because about 300,000 military personnel and public school teachers once again were required to pay taxes, while the income of the middle class increased. That means that the narrowing income gap was in fact a statistical illusion.
Moreover, the richest 5 percent own more than a quarter of the nation’s wealth, while the lower 50 percent of the public own less than one-fifth of the nation’s wealth. According to Ministry of Finance tax data from 2011, many households with an annual income of more than NT$2 million — some of almost NT$10 million — did not have to pay any tax at all, showing that the nation’s tax system is seriously flawed.
The reason for this is quite simple: many high income earners are speculators or capitalists whose incomes largely come from property and stock speculation.
In addition, the Ma administration offers them tax reductions or exemption, making it difficult to diminish the wealth gap. Despite this problem, the government does not sense that anything is amiss. It claims that the nation’s wealth gap is not very serious compared with other countries, and Ma even lists the “narrowing income gap” as one of his key political accomplishments.
According to DGBAS statistics on the nation’s GDP, salaries as a proportion of GDP are decreasing. By comparison, corporate profits as a proportion of GDP are increasing. This shows that employers, instead of employees, are the ones who have benefited from the government’s focus on economic growth, while the government has been able to increase its tax revenues. DGBAS data also shows that as the economy continues to grow, salaries are not growing with it and have fallen to the levels they were at 16 years ago.
When social distribution is unjust, in addition to implementing costly social welfare policies, the government should also adjust tax policies to improve the wealth distribution.
However, the Ma administration is currently busy doing the opposite. Perhaps Ma is worried that new tax policies would hurt the many KMT party businesses.
According to DGBAS data on national wealth in 2012, as high as 70 percent of the increase of wealth among households between 2007 and 2011 came from real estate and the stock market. Unfortunately, these are areas that the tax system does not concern itself much with.
During an interview with Chinese-language CommonWealth Magazine, National Cheng Kung University vice president Ho Chih-chin (何志欽) said that the US and European countries have started to reform their tax systems by increasing the capital gains tax over the past decade, while Taiwan at the moment clearly is moving in the opposite direction. Taiwan’s tax system is more unfair than the US’ system, because the latter levies capital gains tax on property transactions, while the Taiwanese system usually does not.
The numbers that the Ma administration does not want the public to know about show that, as the government continues to focus on boosting the economy, the rich are getting richer and the poor are getting poorer.
Since the lower and middle classes are unable to accumulate wealth in a more effective way, they often inherit poverty from generation to generation, and those at the bottom suffer from the Ma administration’s incompetence.
Mattel Hsu is an adjunct research associate at Monash University in Australia.
Translated by Eddy Chang
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