The Cabinet may claim to be a body of doctoral degree holders, but they are often incapable of explaining their ever-changing policies. This was true of the US beef import debacle and it applies both to an economic cooperation framework agreement (ECFA) with China and to the draft industrial renewal act that the legislature is about to vote on. On the eve of the vote, the Cabinet suddenly announced that it would cut the 20 percent business income tax rate in the draft to 17 percent. That cut will cost the government NT$30 billion (US$956 million) in lost tax revenue.
The draft industrial renewal act is intended as a replacement for the expired Act for Upgrading Industries (促進產業升級條例). It extends tax cuts and incentives that have made Taiwanese industry dependent on government subsidies. By cutting the business income tax from 20 percent to 17 percent in response to opposition calls for a 17.5 percent tax rate, the government is using fiscal revenue to feed industrial profit. By not reforming the regulations in the Act for Upgrading Industries, which distorted the tax system, the government will erode fiscal revenues by helping wealthy people earn more and pay less taxes. While certain to compound social injustice, the effects on industrial renewal are questionable.
Premier Wu Den-yih (吳敦義) has said the 17 percent tax rate was determined by looking at Singapore and that the cut is intended to increase Taiwan’s attractiveness to foreign investors. The difference is that while Singapore relies on the service industry for its growth, Taiwan’s specialty is manufacturing. The economic structures of the two countries are different and offer different advantages, which means that the conditions required for industrial development differ even more.
If the government wants to encourage industrial renewal to increase competitiveness by looking at Singapore, it is comparing apples and oranges. Taiwan needs to learn from Singapore how to improve efficiency and raise overall competitiveness. The nation needs to take a careful look at its own economic system and find development strategies appropriate to Taiwan, and the government and the opposition must stop competing by undercutting each other’s tax suggestions — that only serves to unload debt onto future generations. The government must also stop blindly pushing for an ECFA that will only encourage local industries to move to China.
Minister of Finance Lee Sush-der (李述德) had previously called the current 20 percent business income tax rate the final limit. He even said that “we can’t cut even 1 percent” off that figure, but after the Cabinet’s decision to cut 3 percent, Lee actually justified the change by saying: “It is only normal that policy keeps changing.” He then glossed over the loss of tax revenue by saying that “the economy will grow.”
If the nation’s finances are squandered on lavish policies because the government wants to save the current financial situation with the help of a hypothetical future economy, it is simply moving the economic crisis forward in time. The policy direction keeps changing without any attempt to explain or defend policy decisions or to take any responsibility for the nation’s future development.
We have now seen different scenarios play out over two of the Cabinet’s major policy initiatives: The draft industrial renewal act and the second generation of the national health insurance system. The behavior of Lee and Department of Health Minister Yaung Chih-liang (楊志良) differed vastly. Yaung defended his ideals and policies to the extent that he was willing to resign. Lee, on the other hand, quickly backed off when he encountered opposition, instead of defending his policies and showing the courage to face the consequences of his decisions. Once again, this shortsighted and unprincipled decision-making process reveals how the government is slowly self-destructing.
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