Taiwan's financially strapped government may consider issuing bonds abroad if overseas interest rates offer better returns, according to a government official.
"The government will first consider resorting to domestic excess savings that amount to approximately NT$300 billion when issuing more bonds," Lee Kao-chao (李高朝), vice chairman of the cabinet's Council of Economic Planning and Development (CEPD), said yesterday.
However, "the current interest rate of government bonds is 6 percent; if overseas interest rates are more favorable, why not?" he said.
The government was already financially strapped before the 921 quake. Lee said the quake exacerbated the government's problems.
"The government's finances were affected by the 921 earthquake much more than the whole economy," he said.
Lee notes that a NT$40 billion tax revenue shortfall is expected for this fiscal year due to the quake; preliminary reconstruction expenditure is estimated to run as high as NT$160 billion; and the deficit is expected to reach NT$327.9 billion. However, the total reconstruction expenditure has not yet been finalized.
As for government tax revenue, Lee said that the tax-to-GNP ratio hasn't increased in line with the rise in GNP. He has suggested changing the current tax system of taxing value added to the land to a system based on "the market price of the land."
Government bonds already account for 14.96 percent of the 1999-2000 budget. According to the Government Bond Law, government bonds cannot account for more than 15 percent of the budget.
However, the Ministry of Finance is discussing the possibility of raising or even removing the cap in order to issue more bonds for future reconstruction needs. For now, the bond cap has been temporarily waived under the emergency decree announced by President Lee Teng-hui (
"To conditionally remove the 15 percent restriction is acceptable, but there has to be a ceiling," the CEPD's Lee stressed. "Otherwise the government would have no budget priorities."
Yen Ching-chang (
"The unpaid government bond-to-GNP ratio in Japan is 76.2 percent, and the United States has a ratio of 46.6 percent," Yen said.
However, Lee is concerned that the government deficit is growing too fast for Taiwan's current stage of development.
"Taiwan is still a developing country. If Taiwan compares itself with developed countries such as the US, then Taiwan's finances are worsening too quickly," he said.
While economists agree with the temporary removal of the cap, they are not optimistic that the government's expansionary fiscal policy will boost the economy.
Hu Sheng-cheng (
"The expansionary fiscal policy would have a rather limited multiplier effect on the GNP. But it would have a comparatively larger crowding-out effect on private investment," Hu said.
Mai Chao-cheng (3蟈甕?, president of Chung-Hua Institute for Economic Research (CIER, ??華經濟研究院), also expects that higher interest rates next year would crowd out some private investment.
"The government should provide incentives such as reducing taxes or simplifying administrative policies to encourage private sector investment," Mai said.
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