Mon, Apr 18, 2011 page3

• Luxury tax unlikely to work: academics

  HEAVY BURDEN: A Taiwan Thinktank member said the tax system is unfair as 75% of revenues came from wage earners, who account for only 44.5 percent of GDP

  • By Ko Shu-ling / Staff Reporter
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  Academics yesterday said they doubted the effectiveness of a luxury tax and a pay raise for civil servants, saying both would do little to help make the tax system more just or fix the problem of widening wealth disparity.

  Cheng Li-chun (鄭麗君), executive director of Taiwan Thinktank, said salary increases for public servants over the past decades had motivated the private sector to raise employee wages because unemployment was low and demand for labor was higher than the supply.

  However, unemployment has soared and the supply of labor has surpassed demand, making the private sector less inclined to raise salaries, she said.

  Nor would the pay raise help boost domestic consumption, Cheng said, adding that the consumer vouchers that were distributed to help boost consumption at the height of the financial crisis in 2008 and which cost the state NT$80 billion (US$2.75 billion) had not accomplished their goal.

  The NT$22 billion pay raise for civil servants would not achieve its goal either, she said.

  Cheng said the main reason for the unfair tax system was that 75 percent of the nation’s tax revenues came from wage earners, who account for only 44.5 percent of GDP.

  The rich do not pay enough taxes, she said.

  Tristan Liu (呂曜志), an economist at the Taiwan Institute of Economic Research, said that globalization has had a structural impact on the nation’s industries, employment and population, making the allocation of income more lopsided.

  “While the tax system is an important element for advancing social justice, the government has been cutting taxes for the rich,” he said. “The result is that the rich become better-off and the poor become worse-off.”

  Lu called on the administration of President Ma Ying-jeou (馬英九) to treat tax reform as an important social issue that requires dialogue between the government and the public rather than just with big business.

  The luxury tax cannot help resolve the exacerbation of uneven income distribution, Liu said, adding that the estimated revenue of between NT$15 billion and NT$16 billion from the luxury tax would be insufficient to pay for the substantial amount of social welfare that will be required.

  To make the tax system fairer, Liu proposed that tax on non-residential properties be based on the initial cost of the property rather than the assessment value. Land value increment tax and the home and property trading taxes should also be calculated this way, Liu said.

  In the long-term, Liu said the government should consider including the capital gains obtained by securities and futures trading in the income tax calculation.

  Wang Jung-chang (王榮璋), convener of the Alliance for Fair Tax Reform, said the Ma administration is continuing to borrow money despite worsening public debt and a higher budget deficit.

  Each Taiwanese shoulders NT$910,000 in debt, a number which is estimated to reach NT$1 million next year, he said. By 2013, the government will not be able to earmark a government budget as the money borrowed would reach the legal limit of 40 percent, Wang said.

  Su Jain-rong (蘇建榮), a professor of public finance at National Taipei University, described the luxury tax as a quick fix to the long-term structural problems of the tax system and ineffective in dealing with the problem of disproportionate income distribution.

  To make the tax system fairer, Lue Jen-der (呂建德), a professor of social welfare at National Chung Cheng University, proposed making more low-income families eligible for welfare payments and lightening the taxation burden for employees.

  For the middle-class, Lue said the government should establish a better social welfare system so they do not have to worry about childcare or paying for care for the elderly. For the wealthy, he said, any unnecessary tax cuts for should be scraped and that the current income tax rate should be replaced by a progressive expenditure taxation policy.
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