There are concerns that Taiwan, with its stagnating economy, is set to go the way of debt-ridden Greece. Legislative Speaker Wang Jin-pyng (王金平) has said that Taiwan and Greece are two different cases entirely, since Taiwan has no foreign debt, so there is no danger of it becoming the next Greece. Compared with Greece, he says, Taiwan has a much lower unemployment rate, a much higher savings rate and far more foreign currency reserves, while the government is more efficient and has a better fiscal policy.
On the surface, it does look like there is little by which to compare Taiwan and Greece. However, he is disregarding the core problem of debt: whether the public can afford it, or are willing to pay it off.
Debt is debt: Regardless of the GDP growth rate, the unemployment rate, foreign debt or the private savings rate, at the appropriate times the government must still repay that debt. Japan has no foreign debt, and is able to maintain a high degree of financial stability, but still has domestic debt to pay off. The question is, where does the money to pay off this debt come from and how much is left after the debt has been repaid to spend on domestic programs?
Increasing salaries for public service workers and promises of generous pension packages not only squeeze out funds for economic construction, which would have an effect on economic growth, they also give the government less options in how it allocates finances. This is the cause of the “lost two decades” of Japan, which, despite having no foreign debt, still became mired in long-term economic stagnation.
Elected governments, with their short terms, need only ensure an economic crisis does not occur on their watch. Few governments want to rein in their expenditure or raise taxes on private individuals. Economic growth, reducing taxes and welfare payments are a sure-fire way to attract votes, but if these fanciful promises are more than the economy can bear, the necessary result is always that money needs to be borrowed.
Borrowing money is like doing drugs. Politicians are not obliged to repay loans within their own short term, and so initially enjoy the thrill. However, once they are addicted, the loans have a paralyzing effect on the government, and soon the levels of debt have risen to unmanageable levels. For actual examples, you need look no further than Greece or, closer to home, the Miaoli County Government. Governments get themselves into this predicament by trying to attract votes: It is a result of pursuing policies chasing votes, using any method to win elections.
According to Directorate-General of Budget, Accounting and Statistics figures, the average actual salary for last year was NT$48,600, less than that of 1998, when it was NT$48,800. In other words, real wages went down over the past 16 years. Salaries have stagnated, jobs are difficult to find, and unemployment is high. Under these conditions, young people are finding it difficult to buy homes and have put off having children.
Irrespective of whether Taiwan goes the way of Greece, fiscal discipline and the maintenance of good financial health are the routes to economic construction, national prosperity and sustainability. With the current system of continued borrowing and the inability to pay it back, it is no surprise national debt is spiraling out of control.
The Greek crisis and the burgeoning debt of the Miaoli County Government can teach the public a valuable lesson: That democratic government is no guarantee of prosperity or sustainability, and an irresponsible welfare system and profligate politicians will, in the end, drag the country into disaster.
James Lin is a fellow of the Society of Actuaries in the US.
Translated by Paul Cooper
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