To Eliminate Debt, First Eliminate Populism
China Times editorial (Taipei, Taiwan, ROC)
August 18, 2011
Summary: In response to repeated public exhortations, DPP presidential candidate Tsai Ing-wen has finally unveiled the first plank in her "Platform for the Coming Decade." In the section on taxes, Tsai Ing-wen has promised that if she is elected president, and the DPP wins an absolute majority in the legislature, the DPP will reduce the deficit by half in four years, and balance the budget in eight years. Tsai Ing-wen has boldly proposed fiscal reform. For this she deserves praise. But what specifically has she proposed? Can her proposal negotiate Taiwan's populist political gauntlet, particularly the DPP's? It will be interesting to see.
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In response to repeated public exhortations, DPP presidential candidate Tsai Ing-wen has finally unveiled the first plank in her "Platform for the Coming Decade." In the section on taxes, Tsai Ing-wen has promised that if she is elected president, and the DPP wins an absolute majority in the legislature, the DPP will reduce the deficit by half in four years, and balance the budget in eight years. Tsai Ing-wen has boldly proposed fiscal reform. For this she deserves praise. But what specifically has she proposed? Can her proposal negotiate Taiwan's populist political gauntlet, particularly the DPP's? It will be interesting to see.
Recent opinion polls show Tsai Ing-wen's momentum fading. Even if James Soong runs for president, and the Blue Camp falls prey to internal divisions, Tsai Ing-wen's momentum will be insufficient. If anything, she risks marginalization. Party insiders are extraordinarily anxious. They fear Tsai Ing-wen has no idea how to run a campaign. Many people have even suggested that Tsai Ing-wen learn at the feet of Chen Shui-bian. They have urged her to adopt Ah-Bian's "divide and conquer," Blue vs. Green campaign methods. So far, Tsai Ing-wen has resisted the temptation. She has kept the election focused on public policy, For Taiwan's election climate, this can be considered a small step forward.
Political candidates have a responsibility to maintain a constructive election climate. Tsai Ing-wen has finally set forth a substantive policy proposal. Now it must undergo public scrutiny.
Compared to the United States and Europe, the Republic of China is not on the verge of a financial crisis. If we go strictly by the book, the national debt has yet to exceed the statutory limit of 40% of gross domestic product. Some financial and economic experts fear that if the 13 trillion NT in hidden debt is included, the Republic of China's national debt will reach astronomical proportions. Even more worrisome than the huge national debt is the Republic of China's 11.9% tax rate, This is lower even than Singapore's, famous for its low tax rate. The annual budget deficit is now 240 billion NT. Such a financial arrangement is unsustainable in the long term.
During its eight years in power, the Democratic Progressive Party increased the national debt by one trillion two hundred billion NT. Since the KMT returned to power three years ago, the national debt has increased nearly one trillion three hundred billion NT. The increase in the national debt accelerated. The 8/8 Floods and the financial tsunami reduced government revenue and increased government expenditures. The government's frequent tax cuts have worsened the debt crisis. The problem is that whenever the issue of tax cuts comes up, both the ruling and opposition parties, which usually fight each other tooth and nail, immediately sing the exact same tune. For example, the government's proposal that the sales tax be raised was put on indefinite hold. But the ruling and opposition parties both jumped on the business tax cuts bandwagon. They outbid each other, and abruptly cut the business tax rate from 25% to 17%.
During an interview last week, Premier Wu Den-yih lamented that the Republic of China's tax rate is far too low. But at the same time the public wants everything other nations have to offer. They want social welfare as comprehensive as those in Scandinavia. The government can only do its best. Premier Wu understands the fiscal structure issues, but cannot carry out fiscal reforms. The ruling party is clearly not above reproach.
Tsai Ing-wen has proposed balancing the budget. Her promises must be subject to the same scrutiny. With this plank in its campaign platform, the DPP has vowed to reduce the budget deficit, But it failed to specify how. What precisely does it intend to do? Does it intend to increase taxes? Or does it intend to reduce expenditures? The DPP's Platform for the Coming Decade has done nothing but proclaim a goal. It has said nothing about how to achieve it.
Fiscal policy proposals cannot be discussed in isolation. They must be discussed alongside government spending. The social welfare plank in the Platform for the Coming Decade will be announced on Friday. Based on past remarks by Tsai Ing-wen, one of the DPP's highest priorities is the establishment of an extensive social welfare system. But the DPP has never had the guts to call for a tax increase. Therefore what is all this talk about defict reduction, except hot air?
In fact, the DPP Central Standing Committee has just adopted a resolution. it has decided to increase subsidies to elderly farmers 1000 dollars, It has increased the subsidy from 6000 NT per month to 7000 NT per month. This will increase the burden on the state treasury by 8.4 billion NT. Throughout the process, the DPP has never explained where it would obtain the funds. It has never considered reintegrating the subsidies for elderly farmers into the national pension system. Its proposal is pure populism, utterly bereft of fiscal discipline.
Neither the KMT nor the DPP have any qualms about issuing rubber checks to cover subsidies for elderly farmers. Tseng Chen-wei, a fiscal affairs expert says, "When it comes to taxation and fiscal affairs, there is no distinction between the ruling and opposition parties." This is the sad truth about populist politics on Taiwan. The ruling and opposition parties understand the problem. But they have no desire to work together to solve the problem. Just the opposite. Extreme political polarization has encouraged both the ruling and opposition parties to outbid each other, to buy off voters for short term electoral advantage. In the long term of course, we will all have to pay the price.
In fact, behind Tsai Ing-wen's proposal for a balance budget, lies the concept of intergenerational equity. Birth rates are declining. The heavy burden of debt accumulated by this generation will be borne by the next generation. Is the DPP sincere about the concept of intergenerational equity? If it is, why wait until a DPP candidate is elected president and DPP legislators constitute an absolute majority in the legislature? Shouldn't the DPP practice what it preaches, here and now?