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Taiwan Grapples With Fiscal Crisis

Mary Swire, Tax-news.com. Hong Kong

29 August 2000

At a policy-forming conference in Taiwan, the Premier Tang Fei said that the government would not be able to initiate its promised 'national annuity' programme as scheduled on January 1, 2001. The conference set its face against a tax increase to fund the annuity programme.

However, participants at the conference, addressing the dire state of the government's finances, agreed on raising land tax and debt issuance as ways of broadening national financial resources. The conference agreed to annual reviews of the price of land for tax purposes; the price has tended to lag behind market prices under the current system, in which the reviews take place only every three years.

The intent of the reform is to provide greater liquidity to cash-strapped local governments, who have always complained about a lack of money to facilitate infrastructure construction.

The conference also agreed that bonds issued to repay existing debts should not be included in the current 15% limit on the total of government budget financing.

A proposal to establish lotteries to provide funding for earthquake reconstruction projects was questioned by Tang Fei, who said that the market for lotteries in Taiwan was very limited.

The Government's perennial cash problems are due in large measure to ballooning salary costs for civil servants. Periodically, cost-cutting initiatives are launched, but they seem to get nowhere. Commentators say that the root problem is the Government's lack of politcal willingness to do anything about the inflated civil service, rather than any underlying fiscal weakness, and that this conference, like all the previous ones, will be ineffective.

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