Schive Chi speaks his mind

Taipei Times: What do you think of the 322-proposal conclusion of the Economic Development Advisory Conference?

Schive Chi (薛琦): On the whole, the Economic Development Advisory Conference has improved Taiwan's [economic] atmosphere.

However, when it comes to public policy, it's strange that a consensus was reached at all [in a 120 member conference].

There is always a positive and negative side to any policy. For example, there is a proposal that we should set up an offshore capital market in Taiwan, like China's B share market. But we have to ask whether such a market would work and where the market participants would come from. Therefore, it's a question of whether we are making a significant improvement or not.

As to the cross-strait relationship, the conference certainly creates a positive [goal for the economy], with the resolution to deregulate the "no haste, be patient" policy. However, whether it will be put into effect or not is another question. Many people are eager for concrete action following the conference.

TT: Immediately after the conference, the Cabinet announced plans to cut the land value increment tax in half for two years. Do you think this is a useful move?

Schive: I think there are a number of problems with this policy. Basically, the land value increment tax should be combined with the personal income tax. The reason is simple, it's not fair to levy the land value increment tax separately if we do not consider the income level of the person who sold the land. For example, a peasant could inherit a piece of land from his ancestors with dozens of other relatives. When he and his relatives sell the piece of land, he could share, say NT$500,000, but he has to pay a 60 percent tax, which is 20 percent higher than the 40 percent tax bracket for personal income taxes.

Meanwhile, the peasant had almost no other income during the same year. If we combine the [land value increment] tax with the personal income tax, most of the unfairness could be justified.

Another point is that cutting the tax rate in half would generate lots of loopholes. What will happen over the next two years is that lots of phony transactions will occur to evade the actual tax rates. The consequence after two years will be that almost no transactions will happen at all since almost all of them would have already been made in advance.

TT: In light of the lack of solid fiscal or monetary policy proposals raised at the conference, what priority issues are left to be addressed?

Schive: Balancing the government budget should be the direction taken by the administration. However, with a budget deficit [of NT$2.9 trillion], many are skeptical that the government will be able to balance the budget within the next business cycle, [through spending more now and spending less when the economy recovers]. In order to balance the budget, new taxation or the cutting of expenditures are the only alternatives. But both are difficult under present political circumstances. Many academics suggest that a more conservative approach to public finance should be taken.

On the issue of financial reform, the administration has been doing a good job by passing a number of laws and regulations, including the [formation of] asset management companies, the financial reconstruction fund, the financial institution merger law and the expected financial supervisory board draft. Getting rid of the NT$1 trillion in non-performing loans in the banking sector is another serious problem the administration needs to tackle.