Sat, Nov 02, 2002 page8

• Taiwan feeling the pinch of poverty

  • By Tseng Kuo-Ping 曾國屏
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  Taiwan has become poorer almost overnight -- much poorer today than two years ago when the nation came under the onslaught of an unprecedented economic downturn. As the economy kept sliding, Taiwan's wealth shrank with it. Now, two years later, everyone from the government to the general public is feeling the pinch of poverty.

  This past week, the government narrowly escaped the danger of going insolvent only after the Legislative Yuan hastily passed a special NT$50 billion appropriation to give it the funds it needed to meet interest payment obligations, barely three days before they were due.

  But that appropriation has only temporarily relieved the government of a worsening cash shortage. It is facing a new insolvency danger. The latest data show that the state coffers are likely to register a NT$110 billion shortfall in projected tax revenue for the year. If this is true, the administration must, in the months ahead, ask for a new supplementary budget to raise additional funds to cover the needs of many ongoing spending programs. Taiwan's shrinking wealth has not only hit the central government. Those at the county and township levels have also been affected. Many counties have recently had to turn down retirement applications by their employees and teachers due to their inability to pay pensions.

  The leaders of Taiwan's 319 townships recently threatened to take their case to the streets, should the central government continue to ignore their financial plight. In a recent survey, one third of these grass-roots governments stated that they did not even have sufficient funds to pay salaries. The practice of suspending construction projects and canceling public services because of a lack of money is commonplace.

  If the government has become so poor, it must be due mainly to the fact that the people have become poorer, and, as a result, are paying less in taxes because of diminished incomes in a prolonged economic recession. Official statistics show that Taiwan's per capita income, measured in US dollars, has this year shrunk to 10 percent less than the figure for 2000. A separate set of data shows that the average family in Taiwan has seen its income decline by 2.5 percent in the past year.

  Taiwan's pinching poverty has in large measure stemmed from a plunge in equity wealth. Stock prices have fallen by nearly two thirds of their peak levels recorded in February 2000, one month before President Chen Shui-bian (陳水扁) won his election. A fall in real-estate prices has been another contributing factor, as has the erosion of wages. Wages for workers in the industrial and service sectors dropped by an average of 1.82 percent in the six months from January to July of this year, compared to the same period in 2001.

  While the ravages of poverty have spared none of Taiwan's people, it is those on low-incomes who have been hardest hit. Government figures show that the average incomes of some 1.34 million households last year were less than NT$279,000, far from enough to meet basic requirements.

  This distressing wealth shrinkage is taking a major toll on society. The crime rate is rising and more robberies, kidnappings and economic crimes are being reported. Public confidence has also eroded. Most people, worried by the rising jobless rate and uncertain economic prospects, feel insecure about their future. The impact of a poorer Taiwan on the government is in some ways even more troubling, posing serious challenges for policy-makers.

  Continued shortfalls of tax revenues in the past two years have worsened the budget deficit, which is running at a rate of well over NT$200 billion a year. The big deficit, together with the burden of heavy interest payments for old debts, which have accumulated to NT$3.3 trillion, has made it increasingly difficult for the government to get enough funds to meet even its regular spending needs. Theoretically, the government, faced with a total debt amounting to nearly 30 percent of GDP -- the legal limit on borrowing by the state -- must seek to balance the budget by learning to live within its means. Allowing the budget deficit to continue to swell could cause high inflation over the long run by pushing up interest rates, and undermining competitiveness by crowding out private investments.

  But if the government chooses to cut spending on public works projects and advanced weapons in the interests of a balanced budget, as is currently the case, it will damage Taiwan's basic infrastructure, discouraging investors. Any major reduction in the military budget, moreover, could endanger Taiwan's defenses.

  It is a widely held belief that Taiwan's current impoverishment will be immediately relieved once the economy, which is now recovering at an annual rate of 3 percent, turns stronger. A dynamic economy will bring a boom in business and cut unemployment. When companies and individuals earn more money because of robust economic growth, they pay more in taxes to the government.

  But this optimistic scenario must be based on an economy that can stage a strong and sustainable rebound. It is far from certain that this will be the case, given the continuous massive outflows of investment. As more companies relocate to China and elsewhere, they tend to spend less at home. This trend militates against a significant economic recovery, and can only be bucked by the creation of a more favorable investment climate.

  Tseng Kuo-ping is a freelance journalist based in Taipei.
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