Industrial Innovation Act: MOE Version is Best
China Times editorial (Taipei, Taiwan, ROC)
April 9, 2010
The sunset provisions for the "Statute for Upgrading Industries" kicked in last year. The Ministry of Economic Affairs offered its "Industrial Innovation Act" as a replacement. But just as the Legislative Yuan session was about to end, a big business operational headquarters tax provision popped up, raising a slew of side issues. Disputes erupted and the bill never became law.
During the current Legislative Yuan session, intense mobilization put the Industrial Innovation Act at the top of the to do list. Objectively speaking, it looked as if the bill would pass. But suddenly controversy arose. Two points of contention emerged. The first point of contention was the newly added Article 21. It states that "If small and medium businesses increase their staff, central government authorities must provide employment subsidies. These subsidies may be as high as 10,000 NT a month, and last up to six months. With elderly hirees, the subsidies may last up to one year." The other point of contention was the DPP's proposal that the business tax rate be lowered to 17. 5% from the 20% originally proposed by the Ministry of the Treasury. According to newspaper reports, the KMT has adopted an open-minded attitude toward the tax cuts. Given current tensions between the two parties, and our past experience with ruling and opposition party politicians, we fear compromises in the content of the Industrial Innovation Act. We hope that rationality will prevail, that matters have not gotten out of hand, and that a bill that harms our economy will not be passed.
First, let's look at the tax cuts proposed by the Democratic Progressive Party. Permit us to say in advance that it is a violation of the Budget Law. It is a populist provision that panders to voters and that has not been subjected to careful review. It makes no sense, and must not be hastily passed into law. In 2009 businesses on Taiwan paid 332.5 billion NT in income taxes. Most companies were subject to a tax rate of 25%. Every one percent reduction in tax rates equals 13.3 billion NT. The DPP proposes reducing the tax rate from its original 20% to 17.5%. In one fell swoop it is reducing the annual revenue in the national coffers by at least 33 billion NT. This is a significant loss of revenue. The DPP made this proposal without careful calcuation, without discussion, without mentioning the loss in revenues. It merely shouted tax cut slogans. What is this, if not populism? Is this the kind of behavior we should expect from a responsible political party?
Article 91 of the Budget Law stipulates that legislators who propose substantial increases or decreases in revenues must indicate how the shortfall in funds will be made up. When necessary, they must amend other laws. No matter how one slices it, a 30 billion NT reduction in annual tax revenues surely falls under this provision. The frustrating thing is that over the years both ruling and opposition party legislators have regarded the article as a dead letter. Logically speaking, amending the law is a clear violation of the Budget Law. The Executive Yuan would be well within its rights to demand a constitutional interpretation. Until then, it could treat the issue as a legal dispute and deal with it accordingly. Alas, both Blue and Green administrations have long dragged their feet when it came to tax cut cases. The Republic of China's fiscal plight is about to hit bottom. Yet the DPP insists on these spendthrift proposals. The next time our international credit rating is announced, the bill will come due, for both the KMT and the DPP. The responsibility for the current financial chaos would have been laid entirely at the feet of the ruling KMT and the Ministry of Finance. But since the opposition DPP has been complicit in this crime, it must share the blame. We would like to ask Chairman Tsai, was it really worth it?
Let's take a closer look at the Industrial Innovation Act. Article 20 provides employment subsidies. Frankly, one does not need an industry background to see that the provision of such subsidies for short-term employment will do nothing for "Industrial Innovation." To incorporate such provisions within an industrial innovation bill is absurd. Senior staff employment subsidies and short-term unemployment measures are not conducive to innovation. If anything, they discourage innovation. The administration could have pushed for employment subsidies any time it wanted. It had no reason for tacking an irrelevant provision onto such an important regulation. Secondly, the virtue of other governments' unemployment measures is their flexibility. Turning such provisions into law undermines flexibility. Worse, it is tantamount to assuming that Taiwan will remain plagued by high unemployment. It is tantamount to poor-mouthing Taiwan. Just exactly who in the ruling party proposed such a decadent, obtuse, and bizarre amendment? One really has to wonder.
In sum, we oppose the 17.5% business tax rate proposed by the DPP. We oppose the employment subsidies proposed by the KMT in Article 21. We oppose additional tax cuts for operational headquarters. We support the Ministry of Economic Affairs' original proposal. The aforementioned amendments underscore just how indolent ruling and opposition party legislators have been. Legislators receive research assistant subsidies amounting to several hundred thousands of NT a month. Who knows where these subsidies have wound up? These legislators deserve condemnation. Finally, we must blame the KMT for its failure to coordinate between the party and the administration. They have actually make such outrageous proposals regarding operational headquarters and employment benefits. They have actually allowed them to undergo a Second Reading. If the ruling and opposition parties persist in amending the law in such an irresponsible fashion, what can we say, other than "You are a disgrace!"