The passage of amendments to the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法) marks a milestone in the country’s financial governance. After 25 years of deliberation and discussion, that legislation is now able to reshape the distribution of resources between the central and local governments, boosting local fiscal autonomy and societal resilience without impacting national defense spending.
The amendment adjusts the revenue-sharing proportions between the central and local governments. The central government is currently allocated 75 percent of national tax revenues, leaving local governments with 25 percent. This imbalance has restricted local governments’ abilities to address financial challenges effectively.
Before the 1999 streamlining of provincial governments, the revenue ratio was 60 percent central to 40 percent local.
The new law redistributes an additional NT$370 billion (US$11.26 billion) to local governments, enabling more efficient governance and reducing the need for central government micromanagement. That empowers local governments to proactively address issues with tailored solutions, marking a return to a more balanced financial framework.
Contrary to claims of inadequate communication, the legislative process involved extensive discussions. From May to November last year, the act underwent five review sessions and two public hearings. A final cross-party negotiation on Nov. 11 concluded the process. This ensured the law reflects the needs and expectations of Taiwanese while addressing long-standing grievances. It is regrettable that some critics ignore the 25 years of debate, and the numerous hearings and negotiations held during this legislative session.
The central government’s budget management has faced scrutiny due to consistent tax revenue surpluses over the past four years, averaging more than NT$400 billion annually. Those surpluses, resulting from higher-than-expected tax collections rather than additional taxation, highlight a need for more dynamic and realistic budget forecasting.
Critics say that the overly conservative approach limits opportunities to expand the budget and invest in critical sectors. While the surpluses show fiscal stability, they also reveal the potential for more ambitious fiscal policies to support infrastructure, social services and resilience initiatives.
Despite fiscal stability, some policies raise concerns about long-term financial sustainability. Chief among these is the Democratic Progressive Party’s (DPP) energy policy, which includes moving away from nuclear power.
That decision has led to increased subsidies and NT$500 billion capital boosts for Taiwan Power Co (Taipower) over two years. Large-scale projects, such as the NT$882 billion Forward-looking Infrastructure Development Program and the NT$900 billion 2050 net zero emissions plan, have also sparked debates over their financial and regional impacts.
The redistribution gives local governments a more active role in governance. Increased local funding allows for region-specific policies without relying on centralized decisionmaking. Local governments would be able to allocate funds to improve emergency services, such as police, fire departments, hospitals and civil defense infrastructure.
Critiques of the central government’s civil defense efforts reveal significant shortcomings. Ministry of the Interior data show Taiwan has more than 105,000 evacuation facilities capable of sheltering 86.55 million people. However, many are simply parking lots or government buildings, with maintenance deprioritized in favor of recordkeeping.
Shifting resources to local governments fosters a decentralized and tailored approach to building social resilience, enabling community-specific solutions to strengthen emergency preparedness. That includes improving infrastructure, increasing budgets for civil defense and disaster relief-related agencies, and enhancing equipment for critical services. By addressing these, Taiwan can ensure its fiscal policies not only support financial stability, but also enhance citizen well-being and resilience.
Concerns about the law’s impact on defense budgets are unfounded. Major procurements, such as naval and air capability upgrades or the F-16V program, are typically handled through special budgets. Claims of a possible NT$80 billion impact on the defense budget reflect mismanagement and the conservative approach to increasing the central government budget rather than an actual lack of funds. The central government’s consistent tax surpluses provide ample room to reorganize spending and expand the overall budget.
Instead of resorting to fearmongering or blaming fiscal constraints, the government should address financial challenges and reorganize spending priorities. Irresponsible rhetoric undermines public confidence and distracts from genuine efforts to resolve fiscal issues.
The passage of the amendments represents a major step forward in addressing fiscal imbalances and empowering local governments. By reallocating resources, the law reflects the public will and provides a foundation for more balanced governance. The central government should avoid spreading fear, and instead focus on solutions to reorganize and rectify avoidable spending resulting from controversial policies.
Central and local governments must collaborate closely to maximize the benefits of the reform. That includes increasing budgets for critical services, enhancing civil defense infrastructure, and improving communication between the Ministry of the Interior and local governments.
Ultimately, the law’s success depends on its implementation and the ability of both levels of government to work together toward shared goals.
Wang Kai-chun is a foreign policy advisor for the office of Chinese Nationalist Party (KMT) Legislator Hsu Chiao-hsin.
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