Interview with Su Le-ming, Director-General of the National Treasury Agency
interview by Andre Huang / tr. by Phil Newell
July 2008
Taiwan's government finances are often described as "concentration of power and money in the center." Thus when local governments hit financial difficulties, they have to appeal directly to the central government for help. This is why the Act Governing the Allocation of Government Revenues and Expenditures, which governs the distribution of financial revenues and responsibility for expenditures between the central and local governments, has always been a focus of widespread attention.
What are the main reasons for the financial difficulties faced by local governments? How has the central government responded? Taiwan Panorama presents an exclusive interview with Su Le-ming, director-general of the National Treasury Agency, for an in-depth analysis of these and related issues.
Q: What is the main reason for local financial difficulties?
A: Among the 23 local governments (cities and counties), ten rural counties facing problems of population out-migration, and lack of a industrial or commercial base, are allowed to keep all their tax revenues, not only those directly belonging to the locality but also those collected in the name of the central government. Nonetheless, income still has never been able to keep up with outlays in these places. Then there are 15 cities and counties that have trouble even meeting their personnel payrolls with their local revenues; even if they can find the money to hire people, they don't have the funding to allow them to do their jobs.
Besides the rural-urban gap, larger economic factors have also been at work. Take for example the land value increment tax, which in the past was a main source of income for local governments. From a peak exceeding NT$180 billion in 1993 and 1994, the total steadily fell until it bottomed out at NT$42.3 billion in 2001. Although it has risen somewhat since then, it was still only NT$74.7 billion in 2007. This has been a sharp blow to rural counties, where land prices have been stagnant.
Q: How has the central government responded?
A: With regard to the fiscal problems related to the urban-rural gap, the central government's main strategy has been to use block grants and centrally allotted tax revenues to transfer monies from wealthier areas to poorer areas.
Beginning in 2001, the central government greatly increased the scale of block grants to localities, from NT$36.1 billion in the 18-month period from mid-1999 to the end of 2000, up to NT$128.6 billion in the year 2008. At the same time they created incentives for cities and counties to boost income and reduce expenditures. As a result the combined deficit of all localities fell from NT$78.6 billion in 2001 to NT$36.8 billion.
Moreover, in the future we can expect the original NT$360 billion in centrally allocated tax revenues to expand to more than NT$450 billion. The money will mainly come from redirecting taxes that originally belonged to the central government-namely 10% of income taxes (for both enterprises and individuals) plus business tax-to localities.
Q: How did the central government create incentives for cities and counties to boost income and reduce expenditures in order to become financially autonomous?
A: As part of the current round of amendments to the Act Governing the Allocation of Government Revenues and Expenditures, preparations are in place to incorporate some new indicators to determine which cities and counties are generating new revenues. These include total turnover of for-profit enterprises, increase in house tax revenues or in industrial population, and so on. These cities and counties will then be rewarded with larger shares.
In terms of block grants, there will be an evaluation of how each locality performs in terms of finding new tax sources, attracting business, and increasing income. The basic principle will be "the more you collect for yourself, the more help you will get from the center," meaning that the harder you work the more of a reward you will receive. This will encourage localities to do more for themselves.
Moreover, in recent years the central government has held conferences so that those local governments that have increased revenues and cut spending can share their experiences and innovations with other cities and counties.
In fact, since the passage of the Local Tax Code and the Charges and Fees Act, localities have not performed very well at increasing tax revenues, and there is still a lot of room for improvement. For example, when local governments repair or build certain roads, they can consider collecting tolls as is done on the national highways. Taiwan also has a lot of historic and cultural sites that could be tourism money-spinners. For example, the military cemetery on Mt. Wuchih in Taipei County has the graves of many leaders in the War of Resistance against Japan and well-known figures from modern history, and it could be opened to tourists, like Arlington National Cemetery in the US, and charge an entry fee. It could function simultaneously to teach people about history and culture and also increase revenues.
Anyway, my point is that there are a lot of ideas out there for increasing revenues, and all that local governments have to do is show
some initiative and their financial situations will naturally improve.
