Mon, May 15, 2017 page6

• The Liberty Times Editorial: Government should fix bad policies

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  As President Tsai Ing-wen (蔡英文) nears the first anniversary of her presidency, the public continues to be displeased with her performance. While the president’s approval ratings remain low, the Cabinet is even further from meeting public expectations.

  Despite the Tsai administration’s NT$882.49 billion (US$29.22 billion) Forward-looking Infrastructure Development Program, modeled on US President Donald Trump’s US$1 trillion infrastructure plan, and its consistent efforts to push for pension reform, it has received little praise and been unable to turn the tide of public opinion.

  A look at the Tsai government’s major policies should reveal how the Democratic Progressive Party, now in complete control of the executive and legislative branches, could run into a brick wall so soon after its sweeping victories in last year’s presidential and legislative elections.

  The administration’s first major policy was the five-day workweek system. Before the implementation of the policy, 30 percent of Taiwan’s workers did not have two regular days off every week. It made sense to implement a five-day workweek by revising the Labor Standards Act (勞動基準法).

  However, lacking sufficient knowledge of the practical effects, the government decided on a version of the law that was highly idealistic and put great pressure on employers.

  The new law, which divides rest days into fixed days off and flexible days off, stipulates that all employees must take at least one day off during any given seven day-period. In addition, overtime pay was also sharply increased and the same rules applied to all industries, without exception.

  Industries around the world are going through fundamental changes as big data, artificial intelligence, automation and other technologies proliferate. The Tsai administration has emphasized the need to develop the “five plus two” innovative industries — an “Asian Silicon Valley,” “intelligent” machinery, “green” energy, biomedicine and national defense — in addition to setting up a new agricultural business model and a circular economy.

  However, it has continued to cling to a labor law mainly designed for labor-intense manufacturing industries, causing Internet-related industries and businesses that are heavily dependent on mental work to be bound by unnecessary restrictions.

  Taiwanese industry consists primarily of the export and service industries, which typically have high personnel costs and experience seasonal fluctuations in demand. Reduced flexibility in personnel management under the new rules has significantly increased costs for such companies.

  Big corporations might be able to adjust to changes brought by the new labor law, but small companies might not even be able to survive. Increased costs have also caused consumer prices to rise, making life even more difficult for the general public.

  Meanwhile, tighter rules on overtime hours and higher overtime pay have only increased stress for employers and made employees unable to work as much as they want to increase their earnings. In other words, the result is a situation where employers, employees and consumers all lose.

  Another policy that has received a lot of criticism is the government’s tax reform plans. Increased globalization and freer flow of capital has led to a trend among nations of lowering tax rates to attract investors. One good example of this is the tax cuts proposed by Trump.

  If even the US — with its leading technologies and strong economy — needs to reduce its tax rates to attract more business and investors, what reasons does Taiwan — as its economy remains stagnant — have to increase its tax rates in the name of normalizing its tax regulations?

  The ongoing tax reform is slowly taking Taiwan in the opposite direction of where many other nations are heading.

  One of the government’s tax reform plans is to increase the gift and inheritance tax rates and use the additional revenue to fund a national long-term care services program.

  Under former president Ma Ying-jeou (馬英九), the gift and inheritance tax rates were significantly reduced, from 50 percent to 10 percent, but revenue generated from those taxes did not decrease.

  The reason for this was that wealthy people did not feel the need to avoid those taxes after these had been lowered; from the government’s point of view, getting 10 percent is better than getting nothing at all. With these tax rates now set to rise, there is a great risk that tax revenue might not increase as the government expected.

  In addition, under current law, tax rates on stock dividends are different for domestic and foreign investors. This has created a huge advantage for the latter, who typically own more than half of the shares in Taiwanese blue chip companies.

  For example, 79 percent of Taiwan Semiconductor Manufacturing Co’s (TSMC) shares are owned by foreign investors. As a result, much of the wealth created by TSMC has gone into the pockets of foreign investors. Taiwanese blue-chip companies nevertheless are the main driving force on the nation’s stock market.

  This is why, although the Taiwan Stock Exchange broke through the 10,000-point barrier last week, domestic demand remains low and the general public and consumers hardly notice any difference.

  Of all possible solutions for the difference in tax rates on dividend income, the government chose one that would ensure the lowest loss in tax revenue.

  Only about 30,000 investors who trade large volumes and fall into the consolidated income tax brackets with a tax rate of 40 percent or more would benefit from the plan, while about 1.5 million investors with low or medium incomes would have to pay more tax on their stock dividends.

  The government also cut the transaction tax on day trading in the hope of boosting trading volumes to save the flagging securities industry by attracting more funds into the local equity market.

  The tax cut certainly shows that the government is pushing for tax reform, but its approach is nevertheless bewildering. Despite bullish sentiment in the Taiwanese stock market, the securities industry is still a long way from full recovery — a sign that many fundamental problems remain unsolved.

  For example, the growth of electronic trading means that there will be less demand for personnel in the securities industry.

  The day trading tax cut would certainly not be enough to help securities companies offset their revenue losses. While the tax cut could attract more short-term investors to the stock market, it really needs long-term investors who can bring stability to the market.

  As it turns out, the tax cut only brought additional funds to the stock market for two days, after which the trading volume immediately fell back.

  Unreasonable securities transaction and stock dividend tax rates should be corrected as soon as possible, as they can be detrimental to the long-term development of the capital market. By ignoring the real issue and trying to take a shortcut, the government might instead be exacerbating problems.

  Taiwan’s biggest problem is its low wages, but instead of focusing on improving the nation’s sluggish economy, the government has created more problems for industries by thwarting their development.

  This is why employers and employees alike are unhappy with the government. From the five-day workweek reform to tax reform, it is clear that the Tsai administration lacks the ability to address the root causes of problems.

  In addition, it is cautious and often gets caught up in minor details. Whenever its policy brings negative effects, it tends to respond by making a series of minor changes instead of making the fundamental changes necessary to correct the situation.

  If a policy decision proves to be wrong, it is better to correct it as soon as possible and be mocked for flip-flopping than to allow problems to drag on.

  Now that Tsai has been in office for almost one year, she must be more aware of the serious consequences that poorly designed policies can bring.

  If bad policies are implemented and never corrected, not only would the government continue to find itself in ever deeper trouble, it would also hurt Taiwan’s future.

  Translated by Tu Yu-an
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