Taiwan took a step toward replicating the Greek debt crisis earlier this week when the Legislative Yuan's fiscal affairs committee recently approved revisions to the Public Debt Law that will hike debt ceilings for special municipal and local governments.
According to the draft revisions approved by the committee, the future five special municipalities, including Taipei, Sinbei, Taichung, Tainan and Kaohsiung, will be able to raise a total of public debt up to 200 percent of their annual expenditures while the remaining city and county governments will have their public debt ceilings lifted from the current 45 percent to 70 percent.
The degree of fiscal irresponsibility manifested by this draft bill is utterly shocking, especially in light of what is happening in Greece and Spain right now and the massive amount of public debt accumulated by President Ma Ying-jeou's Chinese Nationalist Party (Kuomintang) government in its first two years.
Taiwan Fair Tax Reform Alliance Convenor and former DPP legislator Wang Jung-chang warned that since artificially pumping up expenditures is already habitual at all levels of local government, allowing such a generous ceiling to the five new special municipalities will encourage even greater inflation of official spending, while Fair Tax Alliance spokesman and former DPP lawmaker Chien Hsi-chieh openly worried that Taiwan "may become a second Greece."
Presumably, the former DPP lawmaker was not referring to a possible flowering of Greek art and philosophy but the potential for a national fiscal crisis that has struck Greece's center - left Panhellenic Socialist Movement government under Prime Minister George Papandreou and the similar difficulties now faced by Spanish Socialist Prime Minister Jose Luis Rodriguez Zapatero.
According to the fair tax alliance, the possibility of the eruption of a similar national debt crisis in Taiwan similar to Greece is very high and attributable to the habitual reduction of taxes that affect the rich in Taiwan, such as inheritance taxes and tax incentives for investments.
Citing an estimate by the Legislative Yuan Budget Center, Chien estimates Taiwan's current national public debt burden as at least NT$14 trillion instead of the NT$4.6 trillion estimate of the Directorate General for Budget, Accounting and Statistics.
If Chien's estimate is accurate, Taiwan's total public debt burden has already reached 116 percent, far above the safety ceiling of 60 percent set by the International Monetary Fund (IMF) and far higher than the 39 percent claimed by Finance Minister Lee Shu-teh, who maintains that there is no possibility that Taiwan could become a "second Greece."
Regardless of where the truth lies, caution is advisable since a rising public debt burden will inevitably cause grave problems for the solvency of Taiwan's National Pension Fund, the Labor Retirement Pension System, the Military, Civil Service and Teachers Pensions Systems and other institutions.
Moreover, Taiwan would have to rely on its own resources in the event of a debt crisis since our country is not a member of either the IMF or the World Bank.
A debt crisis in Taiwan would undoubtedly also spark deep concern and anxiety in Japan and the United States as well as other regional economies, including the PRC.
The timing of this draft bill is also worthy of concern since its review for a second and third reading will likely take place in the immediate run up to the Nov. 27 mayoral and assembly elections in the five special municipalities.
The prospects of the ruling KMT using its overwhelming majority in the Legislative Yuan to ram this bill through a second and third reading without substantive scrutiny in order to curry favor with voters cannot be ignored.
It is ironic that the KMT, which harped incessantly on "fiscal discipline" when in opposition, took an 180 degree turn once back in office.
Finance Minister Lee Shu-teh engineered the largest degree of tax cuts in Taiwan's history by slicing personal and corporate income tax, inheritance and gift levies and tariffs and used the issuance of public bonds and the sale of national land to bolster central government revenues.
The cuts came despite the fact that Taiwan's inflation adjusted gross domestic product shrank by 1.91 percentage points in Taiwan's worst postwar economic performance.
Although Lee declared that the MOF will begin to study the imposition of a luxury levy and an energy tax, both of these projects were dumped midstream and the touted Tax Reform Commission broke up in fury.
Lee was subsequently ranked as the most unfit minister in the Ma government by the prestigious "Commonwealth" monthly but nevertheless survived Premier Wu Den-yih's shake-up of economic and financial officials last month after KMT lawmakers launched a campaign to "save Lee Shu-teh."
No purpose would be served by speculating on the motives of those lawmakers, but for the sake of ourselves and our children, we urge the Legislative Yuan to halt the passage of this dangerous draft bill and also urge Ma and Wu to bring in a more capable manager of our nation's finances.
Otherwise, the KMT should not be surprised if a renewed movement to resist taxes arises.
Source: Taiwan News Online - Editorial 2010/06/04
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