On February 19, just shortly after the Chinese New Year, the cabinet and the Legislative Yuan were wrangling over amendments to the budget allocation law. Though the "pan-blue" alliance of the opposition KMT and the PFP (which favored the amendments) has 109 seats in the legislature, while the ruling DPP and its "pan-green" partner the TSU have only 103, the "pan-blue" alliance came up four votes short of the constitutionally required absolute majority to quash an Executive Yuan veto (called a "request for reconsideration" in Chinese). Thus the recently installed cabinet of Premier Yu Shyi-kun succeeded in its bid to block the law, rather than adopt the amendments put forward by Ma Ying-jeou, the KMT mayor of Taipei, which had passed in the previous Legislative Yuan session.

There are reasons why the central and local governments have been at odds over budget allocations. Apart from various locally administered taxes such as property taxes, and revenue from traffic tickets, the money for local government budgets come largely from various taxes administered by the central government, including the business tax and commodity taxes, for which a certain percentage of revenue is given to local governments. The remaining funds needed by local governments are allocated to counties and cities by the central government on a case-by-case basis, either as a general subsidy to a locality or as funding for specific projects.

Because local governments have limited financial resources, at the end of the year they have traditionally petitioned the central government for emergency funding in order to pay bonuses to teachers and government workers and also to pay off their debts to businesses for engineering and other projects. Some poorer local governments, such as Penghu and Taitung, require supplementary allocations from the central government for more than 50% of all their expenditures. The townships are in an even more embarrassing financial condition, with many of them relying on supplementary allocations for more than 90% of their expenditures. The fact that local governments are entirely dependent on financial support from higher up the chain of government, and that all expenditure has to be approved at a higher level too, makes the entire concept of local self-rule a farce.

In order to resolve the problem of local governments being starved for funds and at the same time reduce the financial disparities between the various counties and cities, last year the Executive Yuan adjusted the ratio used for dividing up overall allocations. It announced that beginning in 2003 the special municipalities of Taipei and Kaohsiung would have their share reduced from 43% to 36%, whereas the 23 counties and smaller cities would have their share increased from 39% to 46%. This was aimed at raising the degree of local self-governance. As before, counties and cities would continue to request supplementary assistance from the central government in order to fund special projects or activities.

Yet, whether or not the adjustment of the ratios was professional and fair, the government's entire funding pie had not grown larger, so if more was going to the 23 counties and cities, that meant the special municipalities of Taipei and Kaohsiung would have to learn to live with less. Not surprisingly, the new plan met with fierce opposition in both cities.

In January of this year, before the new Legislative Yuan was seated, Taipei mayor Ma Ying-jeou proposed new budget allocation measures that would provide funds to localities ranging from NT$150 billion now to up to NT$300 billion in the future. At that time KMT legislators were still overwhelmingly in the majority, and Ma's amendments passed. The newly installed cabinet sent the amendments back to the newly elected Legislative Yuan, effectively vetoing them, thereby requiring the Legislature to pass them again.

Premier Yu said bluntly, "There was no other choice." Since national income would not suddenly grow overnight, Ma's amendments would have meant that central government resources would decline by NT$150 billion. If the amendments had been upheld, the 2002 central budget would have been far from balanced, and this would have had a major impact on the government's effectiveness.

If the Ma amendments had gone through, although funding to localities would have increased, the deep cuts to the central government's coffers would have meant that numerous previously approved (or even partially built) local projects such as sewers and rapid transit would not have been able to go forward. The impact would have been enormous. Under the Ma amendments, the 23 counties and smaller cities would have had those extra funds, but would no longer be able to request supplementary funds from the central government.

Since the 23 had gained something but lost something else, from their point of view it could be described as a wash. The special municipalities of Taipei and Kaohsiung, on the other hand, which have always had less need to request supplementary assistance from the central government, would have ended up the big winners. Such an outcome would have been at complete variance with the original idea of the law to reduce the disparity of wealth between the rich special municipalities and the poorer counties and other cities.

Furthermore, the push for local self-rule in Taiwan has clearly fallen off track. Waste is even more serious among local governments than in the central government. Local department heads often cry poor, while getting government-supplied housing and driving around in Mercedes. Many wondered whether putting more money under the control of local governments without demanding a corresponding growth in accountability would not hurt the quality of government. Tchen Yu-chiou, the chairwoman of the Council for Cultural Affairs, and Huang Jung-tsun, the education minister, have long declared that supplementary funds from the central government for special projects must be allocated in a professional manner. If disposition is entirely left up to the localities, then the quality of projects might be adversely affected.

In reality, with or without the Ma amendments, the Law Governing the Allocation of Government Revenues has points that require renegotiation between the central government and local governments. Even before the veto vote, there was a consensus inside and outside the ruling party that the law "would have to be revised at some point in the future."

After succeeding on the vote to kill the amendments, Premier Yu kept his promise to appoint a seven-person committee by the following day. Chaired by Vice Premier Lin Hsin-yi, the committee's members included Lin Chuan, head of the Directorate General of Budget, Accounting and Statistics, Minister of Finance Lee Yung-san and Minister of the Interior Yu Cheng-hsien. It was predicted that by the first half of May the committee would agree upon recommendations, which would then be made public for general discussion.

The Ministry of Finance emphasizes that this time around they will focus on how much each locality receives in total for both its normal and supplementary funding and then ensure that in the future they will receive "at least that much or more." These revisions will embrace the notion that local governments should be given both money and responsibility. On the one hand, the manpower and financial power of the local governments should be strengthened; and on the other hand, local governments should be given responsibility for functions such as police, firefighting and health insurance, so that they really shoulder the responsibility of being on the frontlines of self-rule. The central government, meanwhile, is taking advantage of this opportunity to reinvent itself as a new "small is beautiful" central government.

To give localities greater autonomy, the revisions to the Law Governing the Allocation of Government Revenues and Expenditures include a set of accompanying regulations, including "General Guidelines for Local Taxation" and "Regulations on Government Fees." With these, every county and city can levy special taxes so as to supplement their budgets in accordance with their needs. In the future it may become increasingly common in Taiwan for cities and counties to have taxes of their own, such as environmental taxes, water resource taxes and tourism taxes. Local governments will start to charge their own fees and aggressively investigate tax evasion in order to bolster their treasuries.

Ultimately, in the current economic environment, it is not realistic for local governments to pin all of their money hopes on the central government. The solution is to go about making more money and saving more money. The answer to making the pie bigger lies with increasing local prosperity so that tax revenues can likewise increase.

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Premier Yu was successfully able to block amendments to the Law Governing the Allocation of Government Revenues and Expenditures. The attention given to this issue as a result of the fighting between political parties has created an opportunity to redetermine the rights and responsibilities that go with the allocation of money to local governments. (photo by Chang Liang-yi, China Times)