Recently, the Executive Yuan advocated raising public debt ceilings set in the Public Debt Law (
The current Public Debt Law stipulates two layers of regulations on the public debt ceiling. One, the total outstanding public debt at all levels of government, whether in general or special budgets, shall not exceed 48 percent of the average gross national product (GNP) in the three previous years as estimated by the Directorate General of Budget, Accounting and Statistics. Of this 48 percent, the central government (including the provincial government) gets 41.4 percentage points. Up to this year, the outstanding public debt owed by the central government is NT$2.4 trillion, which is 27.8 percent of the GDP as calculated using the above method. There is still considerable room between the current amount and the ceiling level.
Secondly, the law stipulates that annual public debts floated by governments at each level shall not exceed 15 percent of that government's general and special budgets for that year.
The central government has floated 14.9 percent worth of the overall and special budgets for this fiscal year -- very close to the public debt ceiling. In fact, if figures from debt amortizing extensions and debt service funds are added, then the actual ratio has already surpassed the 15 percent debt ceiling. The Executive Yuan's idea is to raise this 15 percent ceiling two-fold to 30 percent.
The purpose of raising the public debt ceiling should be to raise the budget volume for government agencies, thereby stimulating economic growth and accelerating economic recovery. However, government agencies are only one part of the country's overall economic activity. Currently, Taiwan's public expenditures account for less than 30 percent of the GNP. In other words, the other 70 percent is generated by private organizations and export trade.
Taiwan's domestic economic fundamentals are quite healthy. This year, an optimistic outlook in the global economic environment and the increasing competitiveness of Taiwan's electronics industry has boosted export trade by 23.2 percent, while capital equipment imports have risen by 43.1 percent. Private consumption and fixed investments are forecast to rise by 6.5 percent and 12.5 percent respectively. Overall economic growth can be maintained around the standard 6.5 percent. Under these circumstances, there is no need to raise government spending by a large margin. The recent slump in the stock market and the unstable economic conditions are due to the swings and sways in the government's economic policies that have led to low public confidence. The government is already deeply in debt now, as more than 15 percent of the annual spendings. If the belt is not tightened now, it will inevitably result in the government's major policies and measures being crowded out by the debt.
Healthy financial administration is the foundation of economic development. Since he came to office in 1993, US president Bill Clinton has pushed hard for financial reforms in the federal government. In 1998, tax hikes and budget cuts turned the federal budget from red to black for the first time in 30 years. For Taiwan, developing more resources and cutting expenditures should be the way to improve the government's financial situation. To develop resources, strengthen the levying of taxes, realize the "polluters pay" policy, and develop more government assets and manage them properly. When it comes to belt-tightening, continue to cut regular expenditures, especially the bloated government work force and the consequent inflation of personnel expenditures -- which have been a foremost target of criticism. Personnel expenditures account for a stunning 40 percent of the overall budget amount. Also, the bloated social welfare expenses should be more strictly reviewed. Public infrastructure projects should undergo more rigorous financial evaluations. Private investment in such projects should be encouraged. These measures should help the government alleviate the pressure to float more debts.
Chang Che-shen is chairman of the KMT's Central Finance Committee.
Translated by Francis Huang.
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