President-elect Tsai Ing-wen (蔡英文) has asked former minister of finance Lin Chuan (林全) to lead the incoming Cabinet, saying that the Cabinet will focus on reform as well as finance and economy. Although Tsai’s designation of Lin has been praised, there are a number of challenges ahead, such as boosting the economy, reconstructing major industries, reforming the national pension system, implementing transitional justice and consolidating and developing democracy.
Each of these challenges is crucial to the nation’s revitalization.
First is the issue of pension reform, which faces the strongest opposition and threatens to bring the nation to the brink of bankruptcy.
The risk posed by the pension system can be better understood by analyzing government data. According to the government’s annual financial statement, released by the National Audit Office in 2014, hidden debts incurred by the central and local governments were mostly caused by pensions for military personnel, civil servants and public school teachers; the public service pension; labor insurance; military personnel; civil servants, farmers and general public insurance and preferential interest rates applied to certain military personnel, civil servants and public-school teachers.
It is estimated that the hidden debt for workers’ pensions alone will reach NT$8.77 trillion (US$267.7 billion) in 30 years, followed by the pensions for military personnel, civil servants and public school teachers under the old system at NT$5.74 trillion and and for public service pension under the new system at NT$2.77 trillion.
Total hidden debt is expected to exceed NT$18 trillion in three decades — surpassing the nation’s GDP. The problem is in no way any less serious than Greece’s problems before it defaulted on its debts.
Taiwan’s income replacement rate for military personnel, civil servants and public-school teachers is one of the world’s highest. If the government does not immediately implement reforms, the nation would inevitably default and become the next Greece. Greece has received financial support from the EU, but in the end it still defaulted. Taiwan is isolated from the international community and it would have nowhere to go for help if it defaults.
Take, for example, the controversial 18 percent preferential interest rate that military personnel, civil servants and public school teachers enjoyed until 1995.
As the payments reached a peak over the past two years, the nation started spending more than NT$80 billion per year, placing a heavy burden on the budgets of the central and local governments. Seventy to 80 percent of the education budget is spent on teachers’ retirement pensions.
As a result, it is difficult to maintain regular operations and impossible to implement new policies, let alone providing a better educating for the next generation. The increasingly heavy burden of retirement pension expenses for these groups is also reflected in the central government’s budget for major public infrastructure, which declines with every year.
The circumstances have rendered the government’s push for economic development through fiscal means in response to financial crises and economic downturn ineffective.
All past national leaders have been fully aware of the pension crisis and they all proposed reform plans that turned into empty slogans that achieved nothing.
The solution is very simple: Increasing premiums, reducing payments and subsidies, delaying the retirement age in combination with ending the practice of retirees receiving double payment in the form of a pension and a salary, and reducing the preferential treatment for certain professions.
Everyone agrees on these issues. However, pension reform would hurt the vested interests of certain groups, so they have distorted the measures to serve their own benefits, misleading the public to believe that such reform is specifically aimed at military personnel, civil servants and public school teachers, claiming that the groups are being stigmatized, thus clumping them all together to form a strong anti-reform force. This is the reason, despite repeated calls for reform, there have been no results.
Since military personnel, civil servants and public-school teachers used to be die-hard supporters of the pan-blue camp, it tried to protect their interests. To regain power, the pan-green camp did not dare to offend them either, therefore pension reform remained stuck in a political limbo.
In the push for pension reform, the key to overcoming hurdles lies in communicating with the younger generation, including government employees who do not enjoy the 18 percent preferential interest rate. They should understand that retirees and senior government employees would remain as the sole beneficiaries if the pension system remains as it is and that young people are not the target of reform. The pension system would exist in name only if it goes into bankruptcy and senior government employees would end up with nothing by the time they retire.
The appeal for pension reform should shift its focus from morality and ideals to a more realistic approach of ensuring retirement pensions for all workers and military personnel, civil servants and public school teachers. Proponents of reform should tell the public that although pensions for government employees would shrink compared with the current system, there would be a rational and sustainable system based on national finances that can protect their needs during retirement.
More importantly, pension reform would eliminate the opposition between different generations caused by the current system, under which the older generation consumes the pension funds before the younger generation. It would ease the anxiety of younger generations, thus forming a pillar for stabilizing the society.
Pension reform is indeed facing huge difficulties and it has now become a sensitive issue that no party dares touch if it wants to gain power.
However, if Taiwanese propose a comprehensive discourse and analyze the current system and the advantages and shortcomings of reform, they can then allow younger workers and military personnel, civil servants and public school teachers to truly understand that they will not have a future without reform, thus turning opposition into a helping hand.
By doing so, success would come when conditions are ripe, as pension reform finally achieves its goal and Taiwan becomes a just society. That would be the greatest challenge as Tsai takes office on May 20.
Translated by Eddy Chang
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