Notes from Central Taiwan: KMT sows chaos

Shifting the majority of the national budget to local coffers will almost certainly increase corruption, further encourage China to interfere in Taiwan’s affairs, and eviscerate the defense budget.

• By Michael Turton / Contributing journalist

This month, Taiwan received a brutal Christmas present when the Chinese Nationalist Party (KMT) passed three desired amendments, making it harder to remove elected officials, emptying the Constitutional Court and changing budget allocations to local governments. The nation currently has no ultimate authority to determine the constitutionality of government actions, and local governments, largely controlled by the KMT, have far greater funding. We are facing an abyss of chaos.

Amendments to the Law Governing the Appropriation of Government Revenue and Expenditure (財政收支劃分法), if they become law (at the time of writing, President William Lai (賴清德) said he would signed into law before the Jan. 2 deadline), would allocate 60 percent of available funding to local governments instead of the current 25 percent. According to the Directorate General of Budget, Accounting and Statistics (DGBAS), this would reduce central government spending by NT$375.3 billion ($11.48 billion). The DGBAS also said the government would lose nine percent of its total revenue as a result of the amendments.

To put this figure into perspective, the defense budget for this year is currently set at NT$647 billion ($20.24 billion), or 2.45 percent of GDP, while the budget as a whole is rises to around $90 billion. The resulting budget cuts would also reduce funding for health programs, such as cancer screening, which save government funds by detecting problems earlier. Remember that the government is committed to investing massively in renewable energies over the next five years, as well as implementing social programs to support the birth rate. Of course, public spending helps stimulate economic growth. These amendments therefore constitute a brutal attack on the future of the nation.

TAXES TOO LOW IN TAIWAN

The omitted variable in this debate is of course the country’s pitiful tax collection. According to a report from the Organization for Economic Co-operation and Development (OECD) this year, in 2022, the average tax-to-GDP ratio in the 36 Asia and Pacific economies surveyed was 19.3%, below from the OECD average of 21.5%. A CommonWealth Magazine article in May this year observed that Taiwan’s tax revenue as a percentage of GDP was only 19 percent, while its sales tax rate of 5 percent was the second lowest in the world, in front of little Andorra. It is telling that no one in this debate mentioned raising taxes: refusing to tax Taiwan’s heavily undertaxed rich is the only value widely shared by the country’s political elites. This quiet deal is one reason the public has become so cynical about blue-green politics.

As I have already pointed out, land use planning and land speculation are the driving force of the national economy. These activities are the domain of Taiwan’s wealthy classes. In this ecosystem, low property taxes help drive up real estate asset prices. Scholars Fu Chien-Hao (傅健豪) and Tseng Chung-Hsin (曾中信) analyzed Taiwan’s property tax system and found that it systematically undervalued real estate, a phenomenon that scales with the value of property: the difference between the market value and the taxable (tax) value. is highest for high value properties. The property tax is therefore “severely regressive”. This is why the rich invest in real estate.

The same goes for other income systems. In another article, Fu and Joseph Teyu Chou (周德宇) observe that the 2016 tax reform “helped reduce the tax obligations of many tax-filing families, with most of the tax benefits generated by the expansion of exemptions and deductions likely to benefit to families with higher incomes. .” Recent revisions to the property tax law have had similar effects.

The KMT’s amendments to budget allocation represent the first time in 25 years that local governments receive more from the government budget than the central government. This is not a coincidence. He suggests that what pro-China parties are seeking is a return to the 1980s and 1990s, when local factions dominated local politics and the government was for sale (nostalgia for China-era authoritarianism). Chiang Ching-kuo (蔣經國) is little more than masked mourning for this period of impunity of local factions). This was the time when Chu An-hsiung (朱安雄) bought the election of chairman of the Kaohsiung City Council by bribing almost the entire city council – their confessions were obtained in exchange for the government dropping charges against them – and used his influence in Kaohsiung to get his wife a seat in the Legislative Assembly and to make his steel company the third largest in Taiwan. Vote buying and corruption were commonplace.

LOCAL FACTIONS TAKE POWER

How is this relevant? Many of us long-time observers of Taiwan believe that the KMT is slowly being hollowed out by powerful local factions. The authoritarian KMT did not allow local factions to operate at the regional or national level, fearing their competition, but it no longer has that type of power. This transfer of government budget funds to local governments helps fuel this trend, as local politicians use these funds to fuel and water their local patronage networks.

Local governments and the KMT-dominated parliament will likely look for ways to implement parts of the now-defunct cross-strait services pact, or perhaps explore former President Ma Ying’s insidious plan- game (馬英九) focused on the People’s Republic of China (PRC). free enterprise zones. After all, there is no Constitutional Court to stop them.

As I write, the giant Matsu statue envisioned by former KMT Taichung Mayor Jason Hu (胡志強) as a mecca for Matsu devotees and a gateway for PRC influence to Taiwan, is under construction outside the port of Taichung.

This will also help consolidate and expand the KMT’s power at the local level. What will happen then is obvious: local legislators will vote for a new round of weakening central government institutions. The PRC will then be able to gain influence in Taiwan via these governments. Naturally, a KMT-dominated legislature will make no changes to the current property tax system, which helps strengthen its power at the local level and its influence among the wealthy. This will only create more ties between wealthy landowners and the PRC.

DEFENSE BUDGET

These budgetary changes also target another target: the United States. US commentators frequently call on Taiwan to increase its defense budget to at least five percent of GDP. The corollary of this position is that if Taiwan does not increase its defense spending, the United States will be justified in abandoning Taiwan.

Last year, Taiwan’s GDP was around NT$23.5 trillion (US$755 billion). Five percent of that sum is just under NT$1.2 trillion (US$36.6 billion). As DPP lawmaker Puma Shen (沈伯洋) observed during a live broadcast last week, the defense budget is the largest item and the most easily adjustable part of the government budget. He will probably take the biggest hit.

The cacophony of Taiwan abandonment will now grow louder. As expected.

Notes from Central Taiwan is a column written by longtime resident Michael Turton, who provides incisive commentary informed by three decades of living and writing about his adopted country. The opinions expressed here are his own.