The Cabinet last week said that it plans to give each Taiwanese a one-off cash payment of NT$6,000 (US$195.47) from NT$450 billion in surplus tax revenue, although President Tsai Ing-wen’s (蔡英文) administration had earlier ruled out any plans for a handout, saying that it prioritized giving the money to at-risk sectors to bolster the resilience of Taiwan’s economy in times of global uncertainty.
Sharing the excess tax revenue with the public would surely make people happy, even though some pundits have said that the windfall should instead be used to repay debts or build infrastructure. Therefore, the government’s policy U-turn on the issue suggests that political considerations outweighed concerns about the global economy, as there is no evidence that giving cash to the public would stimulate consumer spending.
The Cabinet’s decision to share surplus tax revenue with the public is unprecedented. While the Chinese Nationalist Party (KMT) government recorded surplus tax revenue in five of former president Ma Ying-jeou’s (馬英九) eight years in office from 2008 to 2016, with the surplus in 2015 reaching nearly NT$200 billion, no calls for returning surplus tax revenue to the public. However, calls for the government over tax rebates became louder after Tsai took office in 2016.
Indeed, the national tax revenue exceeded the government’s budgetary expectations in 12 of the past 16 years, with surpluses almost becoming the norm in the past few years. Critics have blamed this on a structural inaccuracy in the government’s revenue forecasting model. This could be due to the nation’s economic performance leading to a discrepancy between estimated and actual revenue, or fiscal conservatism by forecasters, resulting in underestimation of tax revenue in anticipation of potential economic challenges.
In any case, three questions arise from the government setting a precedent by giving people cash from surplus tax revenue:
First, should surplus tax revenue always be handled in the same way in the coming years?
Second, does this policy mean that closing the funding gap in government programs and repaying government debt are the next generation’s problems?
Last, if cash handouts are implemented in times of surplus tax revenue, should people be asked to pay more taxes when tax revenue falls short of government expectations? As a follow-up question: Are there any countries with similar tax systems?
With Taiwan’s economy facing multiple headwinds stemming from falling external demand, supply chain realignment, weak consumer spending, and macroeconomic and geopolitical challenges, repeated calls by lawmakers across party lines for the government to give people tax rebates amount to nothing but a populist move ahead of next year’s presidential and legislative elections.
Although government borrowing under the Tsai administration has been much lower than during the previous administration, a special budget of up to NT$840 billion to contain the spread of COVID-19 and provide relief to affected businesses has led to a marked increase in overall national debt. For instance, the central government’s outstanding debt with maturity of one year and above, including government bonds and long-term borrowing, has reached NT$5.71 trillion, or about 30 percent of the average GDP in the past three years.
Lawmakers have long voiced concerns about soaring national debt and demanded that the government keep the nation’s finances from deteriorating. However, their calls for a cash handout while the government is trying to reduce debt and increase repayment suggest that maintaining fiscal discipline is less important than scoring political wins.
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