Mon, Oct 06, 2014 - Page 1 News List

Budget analysts say deficit could aggravate inflation

By Chung Li-hua  /  Staff reporter

The Legislative Yuan’s Budget Center said on Saturday that the deficit could aggravate inflation, after next year’s budget showed a shortfall of as much as NT$160 billion (US$5.25 billion), which would raise government debt to NT$5.546 trillion.

A national development plan approved by the Executive Yuan in January targeted consumer price index (CPI) growth of no more than 2 percent for this year, but the CPI in August was 2.07 percent, a high for the past 18 months. The growth of food costs in general was 5.5 percent, of which a 4.54 percent growth for eating out was the greatest increase in the past 67 months, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said.

Prices of 17 major household essentials monitored by the Executive Yuan’s Price Stabilization Committee showed 5.9 percent year-over-year growth in August, DGBAS said.

By the end of next year, the deficit increase over the seven years that President Ma Ying-jeou (馬英九) has been in office is expected to be NT$1.76 trillion, bringing the government’s debt to NT$17.05 trillion if implicit debt is included, with local governments’ debt reaching NT$2.26 billion.

According to the World Economic Forum’s Global Competitiveness Report released last month, Taiwan slipped two places from 12th to 14th, with the government’s financial deficit and debt ranked 80th and 64th respectively, showing that the budget deficit has taken a toll on the nation’s sovereign credit rating and competitiveness.

Citing economist Bilin Neyapti’s analysis, the Budget Center said that deficit is positively correlated with inflation. The budget deficit would increase the financial institutions’ influence on the government and money supply, which would prompt inflation.

National Taipei University economics professor Wang To-far (王塗發) said deficit is one of the causes of inflation, and fuel and electricity price increases after Ma took office have had major effects.

Taiwan Thinktank chairman Chen Po-chih (陳博志) said the deficit would be greater than what appears on paper.

The central bank puts its annual surplus of NT$100 billion to NT$200 billion into the state coffers, but since Ma was sworn in, the funds have been reduced by NT$600 billion, Chen said.

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