Barring any unexpected developments, at the end of this year Taiwan could have six special municipalities, up from the present two. Taoyuan County is not one of the places being upgraded, but it is trying to boost its population to the 2 million threshold required for special municipality status by offering incentives to people who move there. Ironically, however, Tainan County, after being approved for upgrading through a merger with Tainan City, is reportedly having second thoughts. So what is Tainan County’s problem?
The main motive for cities and counties to apply for an upgrade is their desire to get bigger financial allocations, as Taipei City does at present, so that they can offer their residents improved infrastructure and social welfare. Thanks to its generous financial resources, Taipei City has a well-developed infrastructure, including a mass rapid transport network that is the envy of people living in other cities and counties. However, this has also effectively pushed up property prices in the city, presenting a big obstacle for people from other places who would like to move there.
The usual pattern is for migrants to first find a foothold in Taipei County and then look for a chance to move to Taipei City. Only the length of a bridge separates Taipei County from Taipei City, but the average disposable income of households in the county is NT$970,000 (US$30,200), three-quarters of the city’s NT$1.27 million. The proportion of people with higher education in the county is about three-fifths that of the capital, presenting a sharp contrast between city and county. The core reason for the differences that divide Taiwan between urban and rural, north and south, and between Taipei City and county, is without doubt the unequal allocation of financial resources.
Two years ago, when Taipei County was seeking to be designated a “provisional special municipality,” one of the most compelling arguments it presented was that although Taipei City is just across the river, the amount of tax revenue allocated per capita was much higher for the city. In the end, a compromise was reached, whereby the central government allocated the county NT$15,887 of tax revenue per person, the minimum for a special municipality and equal to that of Kaohsiung City. Multiplied by Taipei County’s population of more than 3.7 million, this adds up to a budget allocation of NT$60.3 billion, or NT$30 billion more than it was getting before.
Of course the benefit gained by Taipei County through upgrading earned it the envy of other counties and cities, many of whom then asked to be upgraded as well. The applicants included Taichung County, Taichung City, Taoyuan County, Changhua County, Yunlin County, Chiayi County, Tainan County, Tainan City, Kaohsiung County and Pingtung County.
It looked as though the number of special municipalities could suddenly shoot up to 10, which would mean that almost everyone would be living in a special municipality. In the end, four places were selected for upgrading, but while these places’ expenditure is set to expand after upgrading, their financial resources would be limited.
The central government plans to devolve some of its operations to the special municipalities. In doing so, one would expect it to provide sufficient financial resources and to implement local financial autonomy. Otherwise, the municipalities would stand to gain nothing: The six would want a bigger chunk of the financial allocation and attempt to grab funding originally earmarked for those counties and cities that had not yet been upgraded. At the same time, they would find they lacked sufficient funds to satisfy their own growing financial demands. This predicament is precisely the reason why the Tainan County Government is now considering not upgrading after all.
The central government has borrowed a lot of money in recent years. Having come close to the upper limit for borrowing laid down by the Public Debt Act (公共債務法), the government has been forced to get round legal constraints by drawing up special budgets. The cash-strapped central government does not have enough financial resources to meet the demands of six special municipalities, so it wants to fudge the issue by raising limits on borrowing by local governments.
Proposed amendments to the Public Debt Act would allow special municipalities to incur public debts of up to 250 percent of their annual expenditures, while other city and county governments would have their public debt ceilings raised to 70 percent from the current 45 percent. The central government would like local governments to ease their financial pressures by continuing to borrow.
In short, while the central government is devolving some of its own operations to local governments, it is unwilling to allocate more financial resources to the special municipalities and is just removing limits on their borrowing instead. The central government could well be accused of unloading its problems onto local governments.
Worse, the deregulation of local governments’ borrowing restrictions is like handing out credit cards to consumers irrespective of their ability to repay debts. This may satisfy a mayor’s desire to impress voters with construction works, but sooner or later the chicken must come home to roost.
The proposed amendments on allocating financial resources were put forward at a time when there were only two special municipalities — Taipei and Kaohsiung cities — and only Taipei County was due to be upgraded. Now the central government is pushing ahead with the same plan to deal with the finances of possibly six special municipalities.
Tainan County’s second thoughts about upgrading are probably just the start of the troubles this will bring. No matter who the mayors of these special municipalities will be in November, they will find themselves having no financial autonomy at all.
Chen Jinji is a former director of Yunlin County Government’s Finance Bureau.
TRANSLATED BY JULIAN CLEGG
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