Taiwan’s myriad structural crises

By Tony Lin 林騰鷂  / 

Fri, Oct 26, 2012 - Page 8

The risk that the annual labor insurance pension system will break down because the Labor Insurance Fund is soon to go bankrupt, in combination with the unjust pension mechanism for military personnel, civil servants and public school teachers and their year-end bonus payments, has upset the general public and is causing something of a panic. However, this is but one of the many structural crises currently facing Taiwan.

Rapid changes in the demographic and industrial structure along with an outdated Constitution and legal system have created an increasingly unjust social framework that is hurting the vitality of economic development. These factors have also served to further highlight a series of structural crises that the government has been unwilling and afraid to address.

The most obvious structural crisis is that in the fiscal system. The comprehensive evaluation report for next year’s central government budget issued by the Legislative Yuan’s Budget Center shows that more than NT$5 trillion (US$171 billion) of government debt with a maturity of more than one year still has to be repaid.

This is already approaching the debt limit, and the sharply falling birthrate and the rapid aging of Taiwanese society is leading to concerns that the government’s future ability to repay its debts will be further weakened.

The Budget Center also points out that hidden debt of more than NT$14 trillion has not been included in the public debt. In addition, there are many regulations in place that remove the upper limit on public debt.

According to how major countries calculate unpaid debt as a proportion of GDP, Taiwan’s debt currently stands at 125 percent of GDP. According to the debt rules for EU member states, national, regional and local governments may not have unpaid debt exceeding 60 percent of GDP. Taiwan’s debt is twice that. The worry is that the government’s lack of fiscal discipline will set off a debt crisis of the same kind that is currently rocking Greece, Spain and Italy.

The next urgent structural crisis is in the education system. As the birth rate drops, an accompanying sharp drop in demand will pose severe challenges to the educational system as a whole. Even more worrying is that an inability to improve educational quality in response to economic and industrial needs and social changes will create a problem with large numbers of unemployed people holding useless doctoral and master’s degrees.

Unemployment among university graduates is almost three times as high as the general unemployment rate, which has created a situation where many people who “have a degree but not an education,” make up a class of dispossessed educated people. We are now faced with what some media outlets have said amounts to profit-driven schools bringing about the demise of the nation.

The third structural problem is the unresolved constitutional crisis. Taiwan’s semi-presidential system has created an unclear division of powers and responsibilities and serious inefficiencies at the national government level. At the local government level, the rash decision to create four new special municipalities to meet electoral needs has resulted in deteriorating fiscal allocation and failed to improve government efficiency by bringing about a reasonable improvement in the chaotic and imbalanced regional structure.

In the remaining county, city and township governments, the phrase “of the people, by the people and for the people” in the first article of the Republic of China (ROC) Constitution could be replaced by “of organized crime, by organized crime and for organized crime” or “of the wealthy, by the wealthy and for the wealthy.” The result is a government credibility crisis.

Additionally, the structural crisis leading to a wealth gap continues to worsen. The results of the Survey of Family Income and Expenditure announced by the Directorate-General of Budget, Accounting and Statistics on Aug. 17 showed a difference of 6.17 times between the 20 percent of households with the highest and lowest incomes.

If government transfers are excluded, the wealth gap last year increases to 7.75 times, the second-highest after 2009, when the wealth gap was 8.22 times. In addition, the media have reported widely on the benefits for retired military personnel, civil servants and public school teachers who, in addition to their pension payments, get relief payments for three different holidays, a year-end bonus and electricity and water subsidies. This situation is enforcing the view that “officials fatten themselves, while the public starves,” and that is affecting societal harmony.

In addition to all this, potential structural crises also exist in the population, urban-rural, communications, high-tech and national defense sectors. The government authorities, including the legislature and the Cabinet, must address these issues and implement comprehensive and thorough structural reform so that Taiwan does not fall behind South Korea or even the Philippines, and so that the younger generation do not leave the country due to their frustrations and disappointments.

Tony Lin is a lawyer.

Translated by Perry Svensson