People who would be adversely affected by pension reforms when they take effect next month have been saying that as soon as monthly pension payments to retired military personnel, public servants and state school teachers are cut, it would naturally cause those groups to spend less.
They warn that reduced consumption by pensioners would eventually hit all kinds of businesses, starting with the service sector, and that it would drag on economic growth.
These people say that pension reforms will end up hurting everyone, but are their arguments reasonable from the perspective of the nation’s economic sustainability?
Strictly speaking, the pension reforms will only cause temporary pain. They are based on a sense of responsibility for the nation’s future. It is just like getting back to normal daily life the day after a happy party.
Greece’s troubles have made clear why Taiwan needs to implement pension reforms. That must involve not only reducing monthly pension payments for retirees, but also raising annuity premium rates for those still working.
If these steps are not taken, Taiwan could eventually experience a financial crisis that threatens the nation’s very existence.
On the surface, Taiwan has huge foreign currency reserves, but that also means putting more New Taiwan dollars into circulation.
If Taiwan were to run into liquidity problems or default on its debts, it is unlikely that it would get support from the IMF, as South Korea did in 1997, when it was battered by the Asian financial crisis.
Besides, such a bailout would involve surrendering the nation’s financial autonomy and obeying the IMF’s orders, and the required belt-tightening would make life even grimmer.
Indeed, considering Taiwan’s national situation and China’s desire to annex it, Taiwanese might find themselves isolated, with no one willing to help.
That is why the government has no option but to undertake some things that will upset public opinion. Even if it fears losing votes, it must implement comprehensive pension reforms, because national governance, especially with regard to fiscal security and stability, requires accepting responsibility for the future.
It also calls for viewing and judging today’s issues from a historical perspective.
Some of those who will be hit by the coming wave of pension reforms, as well as some media outlets, are threatening working people by saying that the pension reforms will make retirees worse off.
People had better watch out, because this group would be spending less on goods and services, the argument goes.
They also warn the government to watch its steps. If other people, faced with such short-sighted, selfish and malicious attitudes, react irrationally and start behaving in a similar manner, they will only be letting selfish and greedy people lead them by the nose.
Domestic consumption does not rely exclusively on former government employees spending their pensions. It also depends on increasing productivity and upgrading technology. Salary earners are also consumers.
With the government leading the way, businesses should see their employees as a force for growth. They should keep raising salaries so that domestic consumption can keep growing each year, boosting tax revenues and generate more job opportunities.
Those who say that pension reforms would sink the ship and everyone is going down with them should really change their attitude to one of “the whole country is my family.”
Chang Hsun-ching is a writer.
Translated by Julian Clegg
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