Wool Comes From Sheep: No to Pension Reform Grandstanding
United Daily News editorial (Taipei, Taiwan, ROC)
February 2, 2013
Summary: The Blue and Green camps' pension reform programs have been released. The two camps differ slightly on the income replacement rate and burden rates. But otherwise the two camps' reforms show no significant differences. If the ruling and opposition parties are willing to discuss the issues in earnest, a better version may be possible.
Full text below:
The Blue and Green camps' pension reform programs have been released. The two camps differ slightly on the income replacement rate and burden rates. But otherwise the two camps' reforms show no significant differences. If the ruling and opposition parties are willing to discuss the issues in earnest, a better version may be possible.
Compare the Blue and Green camp versions. They involve three key differences. One. They differ on the monthly benefits income replacement rate for retired military personnel, civil servants, and public school teachers. The Executive Yuan wants the rate reduced to somewhere between 75% and 80%. The DPP wants it reduced to somewhere between 60% and 70%. Two. They differ on premium-sharing. The Blue camp wants the government employee/civil service employee debt burden ratio set at 65:35. The Green camp wants it changed to 60:40. They differ on labor health insurance. The Blue camp wants the government/employer/labor burden set at 10:70:20. Green Camp wants the government burden eliminated, and employers and employees to pay 60:40. Three. They differ on the labor insurance premium rate. The Blue camp wants the current 8% divided over 23 years, increased to 19%. The Green camp wants it increased to 16.25%, divided over 30 years.
The DPP has offered an opposition party alternative on a major policy issue. This has enabled the public to compare and to choose. This is healthy rivalry that merits acknowledgment. But the Green camp released its alternative late at night. In terms of content, it was "plenty of thunder, but little rain." As we can see, Taiwan's pension reform dilemma must be dealt with pragmatically. There is no room for boasting and grandstanding. The two camps' versions are so close. If the Green camp persists in characterizing President Ma's version as "a scam," and as "phony reform," it is merely revealing its limited vocabulary.
Examine both versions closely. The Blue and Green camp versions both leave room for ruling and opposition party haggling. Take the income replacement ratio. Can a compromise be found between the 80% Blue camp version, and the 70% Green camp version? That depends on phase two negotiations. Take the labor insurance premium rate. Will the Blue camp 19% version move toward the Green camp 16.25% version? That will require broader society wide negotiations. Both the Blue and Green camps are seeking to satisfy the demands of 9 million laborers. This includes the basis for monthly pension retirement calculations. Will it be the Blue camp version of 10 to 15 years for retired military personnel, civil servants, and public school teachers, and 15 years for labor? Or will it be the Green camp version of 10 years for everyone? These are all negotiable.
The ruling and opposition parties can jockey for political advantage all they want. But the final version must be reasonable. Haggling over details must not undermine the integrity of the pension reform program as a whole. In essence, the pension reform is a money problem. Whose pockets will be picked for the money needed? Any change in the rates or burden will affect the interests of other groups within the system. All of this must be carefully calculated. Only then can we avoid repeating the 18% preferential interest rate experience.
Take the Blue and Green camp's premium sharing ratios. It is obvious why a tiny change can affect the overall result. The Blue camp version places a greater burden on the government, both for public health insurance and labor health insurance. The government is responsible for 65% of the burden for retired military personnel, civil servants, and public school teachers. It is responsible for 10% of the burden for labor. The Green camp version places even more of the burden on wage earners. The government is responsible for 40% of the burden for retired military personnel, civil servants, and public school teachers, as well as for labor health insurance. But the "employer" for retired military personnel, civil servants, and public school teachers. is the government, The Blue and Green camp versions' "employer's share" are in fact paid out of taxes. The "employer" for labor health insurance meanwhile, is private enterprise. Both the Blue camp 70% version and the Green camp 60% version, impose a heavy burden on the employer. If adopted, the Green camp version would result in the labor health insurance premium burden surging from 20% to 40%. This is a heavy burden as well.
According to detailed estimates, by 2036 the Blue camp version will require employers to bear an additional 124.5 billion in labor expenditures. This is nearly double what it is under the current system. If labor costs must remain unchanged, the inevitable result will be downward pressure on compensation levels. The Green camp version would reduce government spending, but double the burden on labor. To subject labor to downward pressure on compensation, would peel another layer of skin from an already skinned goose.
In fact, the entire pension reform program is nothing more than robbing Peter to pay Paul. This includes the "18% preferential interest rate" and "income replacement rate 121%." They are clear examples of "relative deprivation" and violations of social justice. The most critical issue is where the money is coming from. In fact, the "employer" for retired military personnel, civil servants, and public school teachers is the government. The government's wool comes out of the hide of the sheep, i.e., the taxpayers. The employer for labor is private enterprise. The bosses' wool comes out of the hide of the sheep, i.e, labor. Whether the money comes from the government, the employer, or the employee, all of them will be feeling the pain.
Both the Blue and Green camp versions, to put it bluntly, are mere band aids that require one to pay more to get less. The real problem is not whether people will swallow this bitter medicine. The real question is whether once this pension reform time bomb has been disarmed, Taiwan can make an economic comeback. Can everyone's concerns about retirement be allayed? Can everyone's hopes for a better life be restored? Only then will the current pension reform program be possible and make sense.