Sat, Jan 02, 2010 page3

• ANALYSIS: Wu’s ‘grassroots economy’ plan lacks substance: experts

  INTERVENTION STRATEGY The premier’s economic revival plan is unlikely to have any real-world benefits and could make matters worse, academics and analysts said

  • By Shih Hsiu-chuan / STAFF REPORTER
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  After poring over the concept of a “grassroots economy” floated by Premier Wu Den-yih (吳敦義), academics and economists dismissed the notion as a slogan without substance.

  Wu proposed government intervention to address three burning issues: the high unemployment rate, exorbitant housing prices and a widening poverty gap.

  Chiou Jiunn-rong (邱俊榮), an economics professor at National Central University, questioned Wu’s ability to deliver on his promises, saying “he lacks a complete and visionary set of economic policies to lessen the impact of integration of trade and investment in Taiwan and China.”

  “Just three years ago, it was commonly agreed that South Korea was no a match for Taiwan” in terms of competition in international markets, Chiou said. “Today, no one dares to think this way.”

  That was because when South Korean corporations began aggressively branching out in global markers, the Seoul government actively sought out free-trade deals with the US, the EU and Canada, he said.

  Meanwhile, Taiwan only has eyes for the Chinese market in its attempts to spur growth, Chiou said.

  The government has used the removal of tariff barriers to ­highlight the importance of its proposed economic cooperation agreement framework (ECFA) with China, saying that the country would otherwise lose its competitive edge with Southeast Asian countries once a free-trade pact between China and ASEAN took effect yesterday.

  Chiou said it would be “pathetic” if the only way the government could think of to boost the economy were to let businesses keep seeking lower-cost overseas production locations while resorting to small tariff reductions.

  Everyone knows that the original equipment manufacturing and original design manufacturing models, which Taiwan used to establish itself as a vital global high-tech factory, have run up against new challenges in a changing global environment, and that the country now needs new strategies to restore its competitive edge, Chiou said.

  Unless the government finds ways to upgrade industries from labor-intensive and efficiency-driven production to innovation-driven mode, it was unlikely to truly revive the economy and create jobs, he said.

  Wu Hui-lin (吳惠林), a research fellow at the Chung-Hua Institution for Economic Research, said he has not seen any concrete evidence of Wu’s efforts to stimulate the economy at grassroots level, except for the premier asking the national statistics agency to come up with an index that can better reflect public perceptions of economic conditions.

  The point of stimulating the so-called “grassroots economy” is not how economic indices are compiled, but whether the government can help the public understand its policy ideas so that people can determine if they are in the public interests before being put into action, Wu Hui-lin said.

  Citing the controversial fourth phase of the Central Taiwan Science Park in Erlin Township (二林), Changhua County, as an example, Wu Hui-lin said the government never sought the public’s input on the expansion plan, instead imposing the plan on the community regardless of opposition.

  The premier has been very proud of his Cabinet’s efficiency in implementing the expansion plan, but when the ground-­breaking ceremony was held on Dec. 26, hundreds of residents staged fierce protests over the possibility that the plant could contaminate farmlands in the surrounding area.

  “It was all a result of the myth of government omnipotence. The role of the government should be to ensure a level playing field that enables market players to operate fairly and allows everyone to increase his or her human capital and potential,” Wu Hui-lin said.

  He said an example of the policies that the government has proposed with good intentions, but which ended up with unfavorable results, was a monthly subsidy of NT$22,000 for companies that hire newly graduated students.

  The policy instead set a salary cap in the labor market, he said.

  Wu Hui-lin said the government would make the same mistake in its planned policy to build “affordable housing” near subway lines in suburban regions for young people and its continued tax-break measures to develop selected industries.

  “We have learned that only construction companies will benefit from these housing projects and that it was very possible that poor people who really need the housing would eventually have no access to it,” Wu Hui-lin said.

  What the government should do instead is resolve the problem of excessive real-estate speculation, which was the reason behind the sky-high house prices, he said.

  Regarding the widening gap between rich and poor, Tax Reform Alliance head Wang Jung-chang (王榮璋) said “there is no way that the government can bridge the poverty gap with a tax policy that favors corporate profits.”

  Former premier Liu Chao-shiuan (劉兆玄) had granted various tax incentives that critics said violated the principle of taxation equity: lowering maximum marginal estate and gift tax rates from 50 percent to 10 percent, raising the estate tax exemption level from NT$7.79 million (US$243,800) to NT$12 million and the gift tax exemption level from NT$1.11 million to NT$2.2 million, cutting the tax rate for businesses to 20 percent from 25 percent, and maintaining four functional tax incentives for research and development, talent cultivation, logistics and company headquarters.

  Wu Den-yih seems hesitant to address the perceived flaws in an unfair taxation system, under which only the rich and corporations qualify for tax breaks, while salaried workers have little access to tax-saving measures, Wang said.

  For example, Wang said, the premier recently decided to postpone a planned proposal drafted by his predecessor to scrap tax exemptions for military ­personnel and teachers, which had been scheduled to take effect this year, and said that his Cabinet would not introduce an energy tax until the economy has recovered.

  The expiration of the Statute for Industrial Upgrading (促進產業升級條例) at the end of last year did not result in tax incentives being phased out, as the government is now actively pushing a draft statute on promoting innovative industries (產業創新條例) to continue tax breaks, Wang said.

  It is estimated that the tax incentive programs that form part of the draft statute being deliberated in the legislature would result in a significant taxation revenue loss. The planned reduction in business income tax will grant NT$80.8 billion in tax-cut benefits annually to enterprises, he said.

  The taxes the government is expected to collect following the abrogation of the Statute for Industrial Upgrading will not be enough to offset losses from the new raft of tax breaks.

  “When the government’s tax revenue drops year after year, it means that it will have fewer resources to help people in need of assistance,” Wang said.

  Since Wu Den-yih took office in September last year, social welfare issues have seldom been put on his policy agenda, and the single step he has taken in this direction — a long-term care system for the elderly and disabled people, which is desperately needed in light of the nation’s rapidly aging population — will be postponed for two years, Wang said.
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