The government has divided Taiwan’s local government framework into six special municipalities and 16 counties and county-level cities. This model, which puts great emphasis on the six special municipalities, does not work very well. The resulting inequality in resource allocation, as well as the differences between urban and rural areas, are obvious and have far-reaching effects.
The government is set to allocate 65 percent of the centrally funded tax revenues to the six special municipalities, while the 16 counties and county-level cities have to share the remaining 35 percent.
Among the six special municipalities, Taipei takes the largest share with NT$39.64 billion (US$1.2 billion), exceeding New Taipei City, Kaohsiung and Taichung — which all have larger populations than Taipei — by NT$10.5 billion, NT$11.6 billion and NT$15.4 billion respectively. In Taipei, this amounts to a budget of NT$14,600 per resident, at least twice the amount that other cities receive.
For Lienchiang County, which has a little more than 10,000 residents, the budget amounts to about NT$30,000 per capita; for Penghu County, with about 100,000 residents, the budget is NT$17,900 per capita; and Taitung County is to receive NT$15,200 per capita. Taipei with its NT$14,600 per capita comes in at fourth place.
The outlying islands, with their lower populations and lower level of development, receive higher amounts per resident, but counties like Changhua, Yilan and Hsinchu, which are all experiencing fiscal difficulties, only receive about NT$6,000 per capita.
Allocating higher budgets to the six special municipalities becomes the icing on the cake, as these municipalities have larger populations and more funds at their disposal, while the cities and counties that experience fiscal difficulties get less money than they need. This contradicts the original purpose of allocating centrally funded tax revenues to cities and counties.
To allocate these funds more effectively, the government must pay more attention to the distribution of planned subsidies, and let counties and cities submit subsidy plans. The central government should then allocate subsidies based on national and local needs, environmental requirements, and cultural and social development, so that cities and counties that need it the most can receive more money.
Former Miaoli County commissioner Liu Cheng-hung’s (劉政鴻) wasteful finances put the county in such a difficult situation that it was unable to pay salaries and teetered on the brink of default. The central government’s distribution of tax revenues must emphasize the obligation to avoid a “Liu Cheng-hung effect” and promote sound local fiscal discipline. This is necessary to stop government heads from using the revenues as their private funds or to prevent them ignoring their local budgetary responsibilities, and to assure that expenditures do not exceed revenues. They must strive to increase local government revenues and refrain from asking the central government for funds.
The central government’s allocation of tax revenues is an important tool to redistribute resources among local governments. For the six special municipalities and the local county and county-level city systems to take shape, the central government must take a long-term approach and use the funds to guide local development.
The funds should not be used to ensure that the special municipalities remain large. The government should focus on the “small is beautiful” concept and use these funds to encourage the development of well-managed cities, each focusing on creating its own unique features. These are the considerations that should be on the government’s mind when distributing tax revenues and amending the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法).
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