The crisis-struck Miaoli County Government is unable to pay its staff, resulting in the Executive Yuan effectively taking over the county’s finances. This problem is not unique to Miaoli. Yunlin County is also under fiscal pressure and might face a deficit of NT$1 billion (US$31.9 million) in October. If the central government does not find ways to control the situation, this could well be the first in a series of similar events.
That local governments find themselves in difficult fiscal situations is nothing new. Data from the National Treasury Administration show that both Miaoli and Yilan counties have exceeded their debt ceilings. Yunlin, Nantou, Chiayi, Pingtung, Hsinchu and Hualien counties, along with Hsinchu City, are also in dire financial straits, as their debts exceed 40 percent of their respective budgets.
More than half of all counties and municipalities are in financial difficulty. Industry is not sufficiently developed, tax revenue is too low and expenditure continues to rise. Personnel costs for civil servants and public school teachers alone make up over half of county government expenditure. Furthermore, some county commissioners lack fiscal discipline.
Former Miaoli County commissioner Liu Cheng-hung (劉政鴻) is a case in point. He clearly knew the county’s treasury was running low, but he was fond of grandiose projects and used the funds of various government foundations to organize fireworks displays and international concerts and to construct buildings that are underused. As a result, his successor is complaining that the county government cannot pay staff salaries.
Despite Liu’s absurd record, the county council passed the government budget almost untouched year after year, while Liu was given a five-star rating in media polls. He was the role model for Chinese Nationalist Party (KMT) local rule, and was praised by the Cabinet on several occasions. Miaoli County Commissioner Hsu Yao-chang (徐耀昌) used to be a KMT legislator representing the county, but he never questioned local-government finances. In other words, while many people might have found the situation odd, everyone played along and in the end the bottom fell out. This is a structural problem, and while it is necessary to pursue Liu’s possible legal liabilities, he is not the only one under suspicion of wrongdoing.
Liu may be a negative example, but in the final analysis, he has contributed to Taiwan: His failure has made the central and local governments pay attention to fiscal controls, perhaps helping to put an end to the deteriorating fiscal situation at central and local government level.
The economic outlook for the next six months is looking worse than last year. House prices may fall, which means local government fiscal income from a variety of property-related taxes would also fall. If local governments want to develop land to increase revenue, low land prices and difficulties in selling would cause their finances to deteriorate further.
If the government fails to initiate pension reform due to election concerns, and perhaps even increases salaries for military personnel, civil servants and public school teachers in an attempt to win votes, this will only add to the fiscal burden of the central and local governments. If that happens, the next president will accuse President Ma Ying-jeou’s (馬英九) administration of destroying government finances and emptying the national treasury.
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