Sunday, April 17, 2011

Pay Raises for Military and Teachers Highlight Government Red Ink

Pay Raises for Military and Teachers Highlight Government Red Ink
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
April 18, 2011

The proposed pay raise for military personnel, civil servants, and public sector school teachers was stalled for eight months. The matter will probably be settled this week. But the budget process that follows will shine a light on the nation's deteriorating fiscal circumstances, This is something the current administration will soon have to face.

Last August, Taipei Mayor Hau Lung-bin pleaded on behalf of the nation's civil servants. He raised the issue of a pay raise. Since then, various parties have debated the issue. They have tackled the issue from the perspective of electoral politics, consumer inflation, stimulation of consumption, and competition over human resources. Each approach has its own advocates. In his capacity as a policy maker, last year Premier Wu spoke of five criterion for a pay raise: exports, economic growth, taxation, prices, and corporate year-end bonuses. These were later reduced to two: taxes and economic outlook. Finally, last week, he said "we have an excellent opportunity" to increase salaries for military personnel and teachers by approximately 3%. He will report to President Ma this week. If the Legislature agrees, then 800,000 military personnel, civil servants, and public sector school teachers can expect a pay raise by July 1. But as Premier Wu himself said, the case has been under discussion for almost a year. He was embarrassed about the fact. But whose fault is that?

Consider the policy alternatives. Should military personnel, civil servants, and public sector school teachers receive a pay raise? One should consider recent price increases, private sector pay raises, and economic growth forecasts, before arriving at a decision. But such indicators are merely for reference. They are not rigid salary thresholds. Therefore the pay raise issue is fundamentally a political issue. Government policy makers make decisions based on their own subjective priorities. This is true for salary increases. The current salary increase will require an additional 21 billion NT per year. It accounts for only 1.2% of the central government's total budget. But it nearly equals the annual operating budget for the Judicial Yuan and the Examination Yuan. It could underwrite the Ministry of Economic Affairs' development projects for an entire year. It could underwrite the operating expenses for the International Airport Park for an entire year. It could underwrite road construction and improvement plans. As we can see, many other major projects would have to be shelved due to a lack of funds. The government has decided to use the 21 billion NT for a pay raise and not something else. Naturally it was a political decision made in response to current circumsances.

But any political decision that calls for the use of resources, must withstand the test of fiscal soundness. This may be the most painful aspect of Premier Wu's decision. The Ma administation took office in 2008. Since then, the government has run a deficit for three years in a row. The national debt reached a new high each year. This year is it close to 5 trillion NT. That is roughly 37% of the gross domestic product. This was unavoidable. The financial tsunami forced the government to maintain growth by increasing public infrastructure construction. But year upon year of fiscal deficits suggest that when the government issues a pay raise for military personnel, civil servants, and public sector school teachers, it is living beyond its means. If the government enjoys a budget surplus, like Hong Kong, then a pay raise for military personnel, civil servants, and public sector school teachers would be perfectly reasonable and justifiable. The government would not need to hem and haw about conditions and circumstances.

Premier Wu has made clear that this year's pay raise for military personnel, civil servants, and public sector school teachers will come out of a supplementary budget. The funding may dervive from the issuance of public shares. It may exceed tax revenues and income derived from the activation of idle military land. The government has declared that it will not underwrite the pay raise by increasing debt. But this argument has two problems. The first is the legality of the supplementary budget, Article 79 of the Budget Act prescribes four preconditions for a supplementary budget. Essentially it requires a new law. Its agencies require new authority, and some sort of major incident. The Executive Yuan will of course have to present a legal case. Precedents may exist, but the circumstances are now very different. Therefore controversy is inevitable.

Secondly, once military personnel, civil servants, and public sector school teachers have been given pay raises, this recurring expense must be sustainable. It can be made part of this year's supplementary budget and underwritten by specific revenue sources. But next year it will require regular budgets at all levels of government. If governments at all levels cannot balance their budgets next year, the government will have to increase its debt. If the pay raise indirectly increases the budget deficit, it is the same as increasing the debt. The only real solution is to reduce the deficit and reduce the debt, The government cannot underwrite a pay raise for military personnel, civil servants, and public sector school teachers through a Ponzi scheme.

As we can see, a pay raise for military personnel, civil servants, and public sector school teachers is a political decision. It must be accompanied by a clear plan for deficit reduction and debt reduction. The government's fiscal affairs must be credible and sustainable. The financial crisis has passed. But the European debt crisis remains. The key is long-term deficit and unresolved debt problems. The government need not pay off all its debts before implementing a pay raise. But it must at least initiate deficit reduction and debt relief.

2011.04.18 02:59 am








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