Raising taxes is not an easy thing to do and legislators generally prefer to cut taxes rather than raise them in an election year. However, since the affordability of housing and wealth inequality have become hot topics in recent years, it is no wonder that we saw the Legislative Yuan last week approve one of the biggest tax hikes in recent decades.
However, lawmakers have still proposed as many as 45 separate tax-reduction measures — such as deductions for spending on cultural activities, as well as for education or expenditure on long-term care — which they believe could ease the burden on taxpayers, amid stagnant wages, so it remains to be seen if the government will succumb to this pressure before the legislature goes into summer recess.
Through tax reforms and state-asset revitalization projects, the authorities are hoping that they can maintain the central government’s debt level of 38.6 percent of average GDP seen in the previous three years, into the near-term future. Even so, the government’s efforts to keep its debt level from moving closer to the debt ceiling of 40.6 percent means the nation’s challenging fiscal situation and increasingly rigid government-budget allocation will shrink the budget for infrastructure projects every year.
Last week, the National Development Council said the planned budget for public construction next year would be NT$163.6 billion (US$54.3 billion), accounting for 8.86 percent of the government’s overall expenditure. The proportion has fallen for three years in a row and public-construction spending is set to fall to its lowest in the nation’s history. The council said the public-construction budget should normally account for 15 percent of total government expenditure, warning that a continued decline in funding for public infrastructure would hardly spur economic growth.
Clearly, the reduced budget for public construction is not because Taiwanese infrastructure is of such a high standard that the nation needs no more investment in projects to upgrade bridges, roads and ports. Rather, it is the nation’s financial difficulties that have continued to influence the government’s funding for major infrastructure projects.
The government likes to say that signing more free-trade agreements with other countries could help enhance the nation’s economic competitiveness. However, one should remember that economic competitiveness also hinges on a well-developed public infrastructure. Experience has taught us that public-infrastructure investment is one of the key engines of economic growth in this country, not to mention that it can stimulate private investment via improved productivity.
Take the government’s much-touted achievement in the tourism industry for example. Taiwan has become an increasingly popular vacation destination, with the number of foreign visitors increasing and more hotels set to open, but roads and communication networks, public transportation and water and energy infrastructure are just as crucial for enhancing the nation’s attraction as a destination as its delicious food, beautiful scenery and friendly people.
The nation’s fiscal crisis, which is not something that occurred overnight, but involves many issues, especially Taiwan’s brand of electoral politics. Regardless of which political party is in power, Taiwanese showboating politics, aimed at winning over the electorate, have shown failures in fiscal discipline and an inclination toward shortsightedness on economic and welfare issues.
If the government still bases its thinking and actions largely on electoral considerations, with most of its expenditure being allocated to personnel costs, benefits and retirement funds, it not only fails in its obligation to improve the public wellbeing, but also risks pushing the nation off a fiscal cliff.
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