The government has caused a public uproar by going back on an earlier promise to offer tuition fee subsidies to all private senior and vocational high school students so that they pay the same as students in public schools.
In other words, no one should now be surprised if there are further cancellations, policy revisions or a tightening of subsidy qualifications. Public complaints are all but useless because this is the unavoidable result of the direction Taiwan’s tax system and fiscal policies have taken over the past two years.
Data from the National Treasury Agency indicates that the government debt ceiling stipulated in the Public Debt Act (公共債務法) was NT$165 billion (US$5.16 billion) for last year and NT$228.7 billion for this year. Special budget debt — for things such as consumer vouchers, the economic stimulus plan and relief work for Typhoon Morakot — not included in the act was an additional NT$252.5 billion for last year and NT$305 billion for this year.
These figures reveal that for the first time in Taiwan’s history, special budget debt exceeded annual budget debt. Even though the Cabinet has allocated many non-urgent infrastructure projects and expenditure to deal with issues ranging from unemployment to special budgets — which are not restricted by the Public Debt Act — debt accumulated through the annual budget, which is regulated by the act, has already reached NT$4.6 trillion. This amounts to 35.08 percent of Taiwan’s GDP and is closing in on the 40 percent limit.
The economic slump last year caused tax revenue to contract by NT$260 billion. While temporary and not of the government’s making, the government has over the last two years cut business income tax, individual income tax, estate and gift tax and the futures transactions tax. The government has also added special deductions and maintained the deduction for research and development in order to boost industry. Even ignoring the lost tax revenue caused by the great increase in corporate “unappropriated retained earnings,” the tax cuts alone constitute an annual loss of NT$209.5 billion.
The Ministry of Finance estimates that with the expiration of the Act for Upgrading Industries (促進產業升級條例) on May 12, the government’s tax revenue during the first year transit period will be about NT$34 billion. In other words, there will be a shortfall in central and local government tax revenue of NT$175.5 billion next year. Whereas the average per-capita tax burden in Taiwan last year was 12.2 percent, some in the media are predicting this will fall to 11.3 percent in the near future.
Taiwan has no room for more public debt, but government tax revenues are shrinking rapidly. Standard & Poor’s, Fitch Ratings and other ratings agencies have consistently labeled the outlook on Taiwan’ sovereign credit rating as negative.
This fiscal situation is having a serious effect. For example, the government’s social welfare budget has decreased by NT$9.6 billion for this year, not counting national health insurance subsidies for local government.
When submitting budgets for next year, government ministries have been instructed by the Directorate-General of Budget, Accounting and Statistics (DGBAS) to lower their annual budget request by 5 percent. The draft amendment to the Social Assistance Act (社會救助法), crucial to the public, is still sitting in the Cabinet since there is no budget for it. In addition, the nation also faces the looming problem of retirement pensions for military personnel, civil servants and school teachers, not to mention the fact that some are predicting the imminent bankruptcy of the labor, farmer, and national pension insurance schemes.
From this perspective, the controversial tuition fee subsidies are one example of government retrenchment that the public has noticed. Although tightening the policy to exclude high-income households has some minor side-effects, greater financial disasters are just around the corner and when they hit, they could shake the very foundations on which social welfare, medical care and education in Taiwan are built.
There could still be a chance to avoid this outcome, but unfortunately, we have a finance minister who believes that only a fool would not borrow every penny possible and a DGBAS minister whose main contribution to the debate has been an attempt to cancel the public debt ceiling. How can we not be worried?
Sun I-hsin is spokesman for the Tax Reform Alliance.
TRANSLATED BY EDDY CHANG
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