The government has spoken about how to improve the nation’s financial health, after its annual budget plan, approved last month, indicated a shortfall of NT$273.9 billion (US$9.18 billion) for next year, which will be the first increase in the deficit in five years. Moreover, President Ma Ying-jeou’s (馬英九) administration is proposing its first-ever share sale plan for state-run banks and bluechip companies to increase revenues.
The latest statistics show that national debt amounted to NT$5.377 trillion at the end of last month and it is approaching the debt ceiling of NT$5.702 trillion, or 40.6 percent of the average GDP for the past three years. Minster of Finance Chang Sheng-ford (張盛和) last week said the ministry was drafting plans to both control the growth of government debt and expand its revenue sources in compliance with the Public Debt Act (公共債務法).
His remarks came after Council for Economic Planning and Development Minister Kuan Chung-ming (管中閔) said late last month that the council was proposing measures to increase government revenue. Among the measures they proposed is the sale of
government-owned stocks. An initial plan for such sales includes a total of NT$44.1 billion shares in Taiwan Cooperative Financial Holding Co, Mega Financial Holding Co, China Steel Corp, Chunghwa Telecom Co and Taiwan Fertilizer Co.
The finance ministry says the government aims to sell other stock in companies that carry no policy initiatives or in which the government is not a majority shareholder, such as Central Deposit Insurance Corp and Taiwan Land Development Corp. The second-
stage share sale is also part of the government’s privatization drive for state-run companies, following the successful privatization of Taiwan Salt Co, Chunghwa Telecom, China Shipbuilding Corp and Taiwan Cooperative Bank during former president Chen Shui-bian’s (陳水扁) administration from 2000 to 2008.
Before getting too excited about the sale plan, which still has uncertainties due to opposition from labor unions and its need for approval by lawmakers, the government must realize that the main purpose of selling its stocks should be to loosen its control over those companies, rather than earn money.
Government officials have correctly said that insufficient revenues are a key factor to the nation’s fiscal difficulties. Unfortunately they still refuse to face up to the real issue in the current tax structure: A fast-shrinking tax base and too many tax breaks, which have seriously diminished the government’s finances.
Like its peers elsewhere in the world, the government favors tax cuts, as well as increases in social security and pension-related spending, to win approval from businesses and the public. However, it is time for the government to review its generous tax cuts and welfare spending.
While policymakers believe their ideas will increase the productivity of individuals and corporations, the truth is that its policies have led to higher, not lower, budget deficits. The increase in tax revenues has not kept pace with economic growth over the past five years.
Tax equity should be the fundamental policy of any government. If tax cuts only benefit rich people and large companies and increase the tax burden on low and middle-income earners and small businesses, the government must end such unfair policies immediately.
Its obligation under the Constitution is to provide the majority of people, rather than only a prosperous minority, with a sound living environment. With the seven-in-one elections at the end of next year, the government must be careful to walk the path of fiscal discipline rather than toward a fiscal cliff.