EDITORIAL: The math behind public anger

Wed, Jan 19, 2011 - Page 8

Reform of the preferential interest rates for retired public servants was announced to great fanfare, despite the paltry gains involved. Every year, NT$70 billion (US$2.4 billion) is spent subsidizing interest payments. These reforms will save perhaps NT$2 billion to NT$3 billion, and will neither help the government dig itself out of the financial hole it is in, nor calm public anger.

Monthly pension payments for this privileged group, coupled with the preferential interest rate, mean that these pensions are worth between 75 percent and 95 percent of public servants’ original salary. If the pension is 85 percent of the salary, a person previously earning NT$70,000 a month would then be due a pension of almost NT$60,000 a month. Tax on this is minimal, as no tax is payable on the first NT$65,000 anyway, and then there are various exemptions. If active civil servants get a raise, retired ones get a raise on their pension, while subsidies — costing the government NT$10 billion every year — are handed out to those supporting children in school.

Compare this with the average worker’s NT$12,000 monthly pension from the new system, which amounts to 17 percent of the salary of our civil servant above. Even if a worker contributes the maximum amount of insurance — NT$43,900 a year for a total of 40 years — they would still only get NT$20,000 a month. Under the old system, some workers can also receive a retirement package of up to 45 months’ salary, paid by the employer. With an original salary of NT$50,000, that would mean a one-off payment of NT$2.25 million. Spread over 20 years this is not even 20 percent of the original salary. Factor in the monthly pension payments of the average worker and this still only adds up to less than 40 percent of a civil servant’s salary. Furthermore, the majority of businesses in Taiwan are SMEs, which have a life span of about 10 years. Only around 10 percent of workers even receive a retirement payout from their company anyway.

Is it fair that there is so much disparity in the pension systems for public servants and the rest of us? That sound you are hearing is the death rattle of the principle of trust.

The government’s principle of wealth allocation really only applies to about 100 retired government officials, which will save about NT$30 million. Twenty percent of the 400,000 accounts with the preferential rate have savings of NT$2 million or more. That is NT$30,000 in interest every month. It seems likely anyone that has that much in savings would have been a mid to high-ranking official, already on a high salary. If these people were included in the principle, the government would save the taxpayer NT$30 billion a year.

How ironic it is that the very thing that most harms Taiwan in international competitiveness ratings is the lack of administrative efficiency, while the strength of its SMEs is singled out as one of its strongest competitive edges. Those criticized for inefficiency are given an iron rice bowl, while those praised for their industry are not only paid less, but shoulder the greater tax burden to support the former group of supposedly “special” people. No wonder the public is up in arms. Nobody really paid it much mind in the past, when Taiwan’s economy was booming, but now that salaries have stagnated, and in some cases are falling, patience is wearing thin. Even Examination Yuan President John Kuan (關中) conceded there were failings in the career-based system of civil service in a report submitted after a visit to three northern European countries last year. These failings included the emphasis on fairness over flexibility, the lack of skills testing, poor work/life balance and salaries based on seniority, not performance.

Given the failings of the system, the lack of efficiency and the disproportionately favorable welfare, it’s no wonder public servants have found themselves in the public’s crosshairs.