According to information recently released by the Ministry of Finance, national tax revenues and expenditures decreased by NT$92 billion last year and there was a NT$69.8 billion shortfall in collected taxes. The national tax burden (the ratio of total national tax revenue to GNP) fell to 12.9 percent from 13.9 percent in 1999 and the 13.8 percent in 1998. In 1990 the national tax burden was 20.2 percent but it has been declining annually ever since.
In the 1970s, tax revenue made up approximately 80 percent of government expenditure. In the 1980s, tax revenue fell to below 70 percent of expenditure and in the 1990s it dropped even further, to below 60 percent. In the last two years it has fallen to around 56 percent. The reason for the decline is that government expenditures keep rising while tax revenues keep falling as a result of tax benefits implemented over a long period of time, while at the same time it has not been possible to expand the tax base by cancelling the income-tax exemptions enjoyed by the military and teachers.
An overall tax burden of less than 13 percent can only be reflected in the budget by reducing government expenditure. Apart from amending the Public Debt Law (
The simultaneous decrease in the national tax burden and the ratio of tax revenue in support of government expenditure has been ignored by both the ruling and opposition parties -- no one is facing the seriousness of the issue. No one seems to realize that the government's financial powers, reliance on taxes aside, depends on income from monopolies and stock in state-run enterprises.
Over the last few years each election has brought forth campaign promises of tax reductions and improvements in social-welfare services, without matching measures to increase revenues. This has led to a sharp fall in ordinary revenue and a sudden increase in expenditures. From 1999, the unified tax system and the lowering of the business tax for the banking industry have led to annual tax revenues falling by NT$100 billion. The government has to make up its annual revenue by public-debt issuance, selling stock in state-run businesses, selling public land and using funds left over from the previous year.
Even though the improvement of the national financial system is the most crucial part of tax reform, Taiwan's national tax burden, despite being low in comparison to many countries, is structured so that it is concentrated on wage earners and certain industries. Therefore, any measure to increase taxes will mean an increase for the ones already carrying the burden of an unfair system. For example, retired teachers enjoy the extremely high interest rate of 18 percent on their bank savings, with the general public carrying the burden of the balance. This is unfair and even a simple tax increase will still not help amend such structural shortcomings.
Because of this, the long term point of departure must still be tax reform and sound finances. While an adjustment to the tax system may in the short run have negative effects on industries which currently enjoy preferential treatment, it will be greatly beneficial to government revenue in the long term. This should be the long term goal. If, however, permissive preferential measures continue to be implemented and the fundamental tax structure remains unchanged, not only will an unfair and unreasonable tax system continue, but there will never by a solution to the worsening financial situation.
The three big international credit rating institutions -- Standard & Poor's, Moody's and Fitch -- may differ in the national debt credit rating (a country's ability to repay its debt) they give Taiwan, but all three point out that Taiwan needs to improve its deteriorating financial system. This perception of a deteriorating financial system has been created by the repeated enactment of social welfare and preferential tax treatment legislation without any matching revenue-creating measures.
In fact, Article 38 of the Law Governing the Allocation of Government Revenues and Expenditures (
A tax burden of just 12.9 percent calls for serious reconside-ration. Taiwan's financial system is unsound enough as it is.
Hong Chi-chang is a DPP legislator.
Translated by Perry Svensson
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