President Tsai Ing-wen (蔡英文) has listed pension reform as one of the major policies that she wants to achieve, adding that she wants to see everything finalized before the middle of the year.
However, the chaotic scenes inside and outside a forum on reform in Taipei at the weekend were such that Minister of Labor Kuo Fan-yu (郭芳煜) had to call the proceedings to an early conclusion.
This suggests that there is still a lot of resistance to pension reform and that much work still needs to be done if Tsai is to succeed.
The government’s goal for pension reform is simple: It is to be the first stage in creating a sustainable and robust pensions system that addresses the unreasonable elements of the current system and returns it to a solid footing. Even then, it could still go bankrupt before the next three decades are out.
The objective is to try to reduce the financial burden of the next generation in providing for the current generation. However, the main challenge of making the system sustainable is where the money for the next generation will come from.
Even if the government merely seeks to get the costs of the pension system under control, it faces challenges at every hurdle.
The main problem is that the Chinese Nationalist Party (KMT), in its attempt to consolidate its vote among public-sector employees — military personnel, civil servants and school teachers — engaged in pork-barrel politics ahead of every election, allowing for overly generous terms for retired public-sector workers and thereby overburdening the state coffers.
That squeezed out public construction projects and passed the burgeoning government debt to future generations to deal with.
Now that the government is trying to solve these problems, even cutting the preferential 18 percent interest rate on the savings of retired public-sector workers and adjusting the income replacement rate to a level more consistent with the increasing number of retirement years people can expect to live will face fierce opposition.
There is, of course, no such thing as a free lunch. For every bit of preferential treatment one group receives, another has to pay the price. Asking the next generation to take on this debt is immoral and wrong. To ensure this does not happen, the current generation will have to pay more in, take more out and retire later in life. This is how the government must address this looming crisis and it needs to be the spirit behind this wave of pension reform.
The problem is, these changes affect ordinary people, not just public-sector workers: Nine million will be affected.
Although labor groups are calling for a more consistent income replacement rate across the board, together with a set base income and increased labor insurance pension payouts from an average of NT$16,000 to NT$23,000 a month, this will not be easy to do unless the government greatly reduces the income replacement rate for retired public-sector workers and the latter group agrees to this without a fight.
The other option is to increase the labor insurance premium, but there will be a lot of resistance to that, too: Not just from workers, but also from their employers.
If the government does not want to reduce pensions, but it will not increase insurance premiums, it will have to find the money somewhere else, necessitating a tax increase at some point.
Even a business tax increase of 0.5 percent as a permanent source of additional income would be a source of more problems. Would it really help to fund social welfare policies with increased taxes?
These problems must be addressed by the national affairs conference on pension reform. Whether it can arrive at a consensus is anyone’s guess.
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