After forcing through a set of contentious legislative reforms last month, the Chinese Nationalist Party (KMT) and Taiwan People’s Party are pushing amendments to the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法), setting up a new battleground with the ruling Democratic Progressive Party (DPP).
The opposition parties said the amendments aim to increase the proportion of tax revenue allocated to local governments and help standardize how the funds are distributed. However, the DPP views the bills as an effort to chip away at the central government’s fiscal powers, which could weaken national finances and adversely affect national defense, social welfare and major infrastructure budgets.
The Ministry of Finance calculated that the central government would need to release an additional NT$577.7 billion (US$17.84 billion) to local governments a year under the KMT’s amendment. Coupled with general subsidies of NT$212.1 billion, tax revenue allocation of NT$422.7 billion and program-linked subsidies of NT$233.4 billion, the central government would need to provide local governments a total of NT$1.45 trillion a year, almost half of the central government’s total annual revenue, the ministry said.
The Act Governing the Allocation of Government Revenues and Expenditures was last amended in 1999, meaning it has not been updated in 25 years, even though the nation has gone through three peaceful transfers of power between rival parties, as well as changes in the political landscape of local counties and cities.
A fair and reasonable distribution of national revenue between different levels of government is a highly technical issue, financially and politically. With huge staff and administrative resources, the Executive Yuan has an advantage in drafting and designing fiscal amendments more carefully and thoughtfully than the Legislative Yuan, which has a relatively limited capacity for bill research. Indeed, the Executive Yuan presented several amendments to the act between 2002 and 2012 under various premiers, but those bills failed to pass legislative reviews.
The act has not been revised for a quarter century, because it has never been a simple financial issue. It is complex and political. The factors at play have included disagreements on fund allocation between special municipalities, cities, counties and the central government, power struggles between the central and local governments, and legislative committees stalling reviews due to elections.
Whether the central government has room to increase financial support for local governments depends on how much revenue it receives. The biggest issue the nation’s finances face is the ever-growing government expenditures, of which about 70 percent goes to wages and pensions for civil servants. Moreover, zero-sum competition between cities and counties has posed an insurmountable obstacle to mitigating the financial challenges local governments face.
The key to addressing the core problems of the amendments — such as how to make the distribution of tax revenue more fair and reasonable, how to push for fiscal autonomy for local governments along with higher fiscal discipline, and how to solve the imbalance of regional development without favoring specific counties and cities — depends on thorough discussion and negotiation among political parties to turn the zero-sum game into a win-win situation.
The ruling and opposition parties must find wisdom and vision while balancing their political considerations and financial skills to deal with resource allocation.
The opposition parties’ use of their combined legislative majority to undercut the central government’s fiscal power might not result in fair revenue distribution, but might instead waste financial resources, given a lack of discipline among local governments.
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