On May 21, the day after the anniversary of President Ma Ying-jeou’s (馬英九) inauguration, the Directorate General of Budget, Accounting and Statistics (DGBAS) released its latest forecast for economic growth: minus 4.25 percent.
However, the budget for fiscal year 2009 was based on predicted growth of 5.08 percent — a difference of 9.33 percentage points. More worrying is the fact that the DGBAS has a record of optimistic forecasts and has often had to revise its figures downward to fit reality.
So it came as no surprise when, a few days ago, the Ministry of Finance released cumulative tax revenue figures for January to March of NT$529.6 billion (US$16 billion), NT$125.6 billion down from the same period last year — a fall of about 20 percent. The tax budget achievement rate was only 29.7 percent, the lowest in eight years.
This big drop in tax revenue will have a direct impact on the implementation of the government’s budget plans. Taxation is the main source of funding for current account expenditure. The public sector’s annual expenditure must, therefore, be cut.
Annual revenue and expenditure are divided into a current account and a capital account according to their nature. The current account has to be balanced each fiscal year with stable fiscal policy a priority, while the capital account is concerned with capital expenditure and involves active fiscal policies.
But negative economic growth of this degree of severity and a fiscal deficit will lead to a fiscal crisis. The spirit of the Budget Law (預算法) has been forgotten; active spending and public investment to stimulate the economy will come to a standstill.
The government’s general budget for this year was finalized at the end of August last year. At the time the claim that “everything will be fine once Ma becomes president” was still doing the rounds, and many people still hoped that Ma’s fairytale “633” policy — 6 percent annual economic growth, US$30,000 per capita income and an unemployment rate lower than 3 percent by 2012 — could become a reality.
But the governing Chinese Nationalist Party (KMT) misjudged the global economic situation and thus was ill-prepared to deal with the crisis. Short-term effects of the financial downturn have been a fall in stock prices, loss of wealth for ordinary people and a rise in unemployment — from 3.81 percent a year ago to 5.76 percent now.
A longer-term consequence is the abandoning of fiscal discipline. How can we just sit back and allow future generations to be burdened with debt? Is this appropriate behavior for a government that seeks “sustained development”?
We have good reason to call on the government to address the seriousness of the fiscal shortfall in its next budget. We should bear in mind Article 23 of the Budget Law, which reads: “Current revenues and expenditures of the government shall be balanced. Unless due to abnormal conditions in the budgetary fiscal year, capital revenue, government bonds and borrowing, as well as surplus from the previous fiscal year, shall not be used for current expenditures.”
Article 71 of the same law reads: “In the course of budget implementation, if a special event in the nation occurs that makes it necessary to reduce the budget allocations, reduction of the budget may be conducted by a presidential order subject to a resolution by the Executive Council of the Executive Yuan.”
This recession involves complicated financial factors. There is no hope of a quick recovery for the economy. Not only for this year, but also for the next two or three years, the government must exercise caution in drawing up budgets and make sure that expenditure and revenue are balanced.
The KMT should have the courage to admit that it has misjudged the global economic situation and not sink into complacency again. Yet it continues to make policy announcements on opening Taiwan to Chinese investment to attract capital. These will come to nothing; they are incomprehensible.
The government’s annual general budget should distribute funds appropriately, on the one hand by promoting the transformation and upgrading of manufacturing industries through funding for small and medium-sized enterprises, and on the other by proceeding with public construction projects to stimulate domestic demand.
We call on the government not to focus on dragging hot money into capital and property markets to create the illusion that prosperity is just around the corner. Such a policy may bring relief to big business, but it will also lead to even more trouble for the general public.
Hong Chi-chang and Wong Chin-chu are former and serving Democratic Progressive Party legislators respectively.
TRANSLATED BY JULIAN CLEGG
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