There has always been fighting between central and local governments regarding allocation of financial resources, and it usually ends up with the central government, which controls allocation, demanding that local governments depend less on the central government, rein in spending and generate more revenue themselves.
However, this time, a proposed amendment to the Public Debt Act (公共債務法) has led to “rebellion” from unsatisfied local governments. In particular from Taipei, as the capital is likely to face an estimated decrease of NT$183.7 billion (US$6.32 billion) in its loan capacity. Additionally, vigorous discussions over another amendment to the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法) is likely to spend a prolonged period in the legislature before both the amendments are made law.
However, what ought to gain our attention about the ongoing fight over financial resources — besides political conspiracies connected to a presidential bid in the 2016 presidential election — is the question of who should back down, and how a win-win solution can be found to avoid further endangering the nation’s finances.
Last month, the Cabinet approved the proposed amendment to the Public Debt Act, which aims to adjust the amount of money that both central and local governments can borrow in the coming years. The amendment is also seen as a way of helping the recently created special municipalities of Greater Taichung, Greater Tainan and Greater Kaohsiung to accrue additional loan capacity.
Under the amendment, the total public debt at all levels of government will be capped at 50 percent of the average of GDP for the previous three years, rather than 48 percent of the average of GNP of the previous three years under current laws. Additionally, the amendment sets a debt limit of 41.2 percent for the central government, 7.25 percent for the five special municipalities and Taoyuan County (expected to be upgraded to a special municipality in 2014 at the earliest), 1.43 percent for the remaining 16 counties and cities, and 0.12 percent for all villages and townships.
It is easy to understand why the amendment has attracted dissent from almost all special municipalities.
None of them are satisfied with the proposed debt-ceiling adjustments, with Taipei and Greater Taichung saying that it would lead to funding shortfalls in major infrastructure projects, while Greater Tainan and Greater Kaohsiung called for a level playing field in loan capacity with other municipalities. It is also likely that the amendment to the Act Governing the Allocation of Government Revenues and Expenditures, which aims to provide local governments a higher amount of centrally allotted tax revenue, will create more political bickering. However, none of this means the central government should ease local government anger by raising the debt limit. While Taiwan has no foreign debt and its foreign currency reserves are among the largest in the world, national debt has exceeded NT$5 trillion and could hit NT$22 trillion if hidden debt is included.
As economic growth appears increasingly unlikely to keep up with the needs of the times, and has capped national tax revenues, it is only a matter of time before Taiwan becomes the Asian version of Greece, especially if all levels of government think only about how much they can borrow, and politicians still put their own interests before the interests of the nation.
The challenges over the two amendments allow room for a review of the nation’s fiscal health under an electoral system in which politicians tend to make unfulfillable promises to voters, leaving the nation’s financial burden to future generations.
The central government should be prudent in spending taxpayers’ money and local government heads and their political allies should learn to consider options other than debt-financing.
However, Taiwanese should be smart enough to understand why they do not do this.