There have been reports that the Presidential Office and the Cabinet have decided not to raise the salaries of state employees — military personnel, civil servants and public school teachers. This is a rare instance of the government actually protecting generational justice, as this is not just a matter of NT$22 billion (US$667.5 million) — but rather a matter of leaving NT$250 billion in debt to future generations.
It is simple to calculate that the government’s announcement of a 3 percent hike in state employee salaries would add NT$22 billion to central and local government budgets. However, officials have not divulged how much the increase would add to retirement payments. Is this a difficult calculation, or is it just a matter of laziness?
A closer look into the announcement last year that the debt to make retirement payments stood at NT$8.3 trillion shows the figure was arrived at by adding debt from monthly pensions to debt from future payments to people who are yet to retire. These two numbers are proportional to salary levels. According to regulations, pensions must be adjusted accordingly when state employee salaries are changed.
If state employees get a pay increase of 3 percent, monthly retirement payments would also be increased by 3 percent.
That adds 3 percent to debt to fund pensions, while 3 percent also has to be added to the retirement insurance of working state employees.
This means that a salary increase of 3 percent for state employees adds 3 percent to pension debt, and 3 percent of NT$8.3 trillion is about NT$250 billion in “hidden” debt. This still does not include employees in state-run companies. This is the simplest and fastest way to make the calculation.
Why is there such a huge difference in these numbers?
First, based on actuarial calculations, the premium for the retirement system for state employees should be 42 percent, but regulations restrict the premium to 12 percent.
If salaries are increased by 3 percent today, that would add to the government’s payments based on the 12 percent premium and the debt left to future generations would also increase.
Second, the hidden debt keeps accumulating and must be paid eventually. A salary increase of 3 percent would further increase future annual expenditure.
The NT$250 billion that would have been added to the hidden debt as a result of a state employee salary increase of 3 percent is the result of increased future pension payments. The NT$22 billion visible in the government’s budget is not nearly as frightening as the NT$250 billion that cannot be seen, which will be left for future generations to deal with.
When the Miaoli County Government’s huge debt prohibited it from paying its employees’ salaries earlier this year, that could well have marked the first step toward a Greek-style crisis in Taiwan.
Two weeks ago, the Directorate-General of Personnel Administration announced that only NT$34.3 billion remained in the military pension fund late last year and it forecast that the fund would be exhausted by 2019 — in other words, the fund would be bankrupt by that year.
Prior to that, Minister of Finance Chang Sheng-ford (張盛和) and Directorate-General of Budget, Accounting and Statistics Minister Shih Su-mei (石素梅) said that the burden of social insurance, staff costs and other regulated expenditure are increasing annually and already make up 70 percent of annual government spending, adding that it will become increasingly difficult to allocate budgets.
Perhaps the government, which habitually considers increasing pay for state employees when an election approaches, made the calculation that doing so would scare off more voters than it would win, and perhaps that — rather than an understanding of the seriousness of leaving another NT$250 billion in debt to future generations — was the reason it put on end to the suggestion.
Whatever the reason, it is a good thing that the salary increase was halted. Moving toward fiscal discipline and protecting generational justice is a move in the right direction.
James Lin is a fellow of the Society of Actuaries in the US.
Translated by Perry Svensson
In November last year, a man struck a woman with a steel bar and killed her outside a hospital in China’s Fujian Province. Later, he justified his actions to the police by saying that he attacked her because she was small and alone, and he was venting his anger after a dispute with a colleague. To the casual observer, it could be seen as another case of an angry man gone mad for a moment, but on closer inspection, it reflects the sad side of a society long brutalized by violent political struggles triggered by crude Leninism and Maoism. Starting
If social media interaction is any yardstick, India remained one of the top countries for Taiwan last year. President Tsai Ing-wen (蔡英文) has on several occasions expressed enthusiasm to strengthen cooperation with India, one of the 18 target nations in her administration’s New Southbound Policy. The past year was instrumental in fostering Taiwan-India ties and will be remembered for accelerated momentum in bilateral relations. However, most of it has been confined to civil society circles. Even though Taiwan launched its southbound policy in 2016, the potential of Taiwan-India engagement remains underutilized. It is crucial to identify what is obstructing greater momentum
In terms of the economic outlook for the semiconductor industry, Taiwan has outperformed the rest of the world for three consecutive years. This is quite rare. In addition, Taiwan has been playing an important role in the US-China technology dispute, and both want Taiwan on their side, reflecting the remaking of the nation’s semiconductor industry. Under the leadership of — above all — Taiwan Semiconductor Manufacturing Co (TSMC), the industry as a whole has shifted from a focus on capacity to a focus on quality, as companies now have to be able to provide integration of hardware and software, as well as
The US last week took action to remove most of the diplomatic red tape around US-Taiwan relations. While there have been adjustments in State Department “Guidelines on Relations with Taiwan” and other guidance before, no administration has ever so thoroughly dispensed with them. It is a step in the right direction. Of course, when there is a policy of formally recognizing one government (the People’s Republic of China or PRC) and not another (the Republic of China or ROC), officials from the top of government down need a systematic way of operationalizing the distinction. They cannot just make it up as