In the News

Ministers call for increase in tax to GDP ratio

• Publication Date：07/09/2009
• Source： Commercial Times

Several Cabinet ministers suggested at a meeting held July 8 that the tax to gross domestic product ratio be raised to avoid a worsening of the government’s fiscal situation.

During the meeting, Premier Liu Chao-shiuan listened to a report delivered by the Ministry of Finance on overhauling the government’s fiscal administration in the mid to long term.

Liu directed the MOF to actively study and review concrete strategies for bringing the government’s accounts into balance and to deliver a report on the proposals for approval by the Executive Yuan before the end of September.

The government’s NT$450 billion (US$13.6 billion) spending program sourcing from borrowing to stimulate domestic demand in response to the economic downturn triggered by the recent global financial crisis has raised concerns among international credit rating agencies about Taiwan’s increased deficits.

The downgrade of Taiwan’s credit rating to negative by credit agencies several months ago drew Liu’s attention and led him to task the MOF with drawing up measures to avoid a further reduction in the country’s rating.

In its report July 8, the ministry outlined 10 major strategies for revamping the government’s fiscal administration, including tax reform, the development and rental/sale of public lands, customs reform, improved management of state-owned shares, the boosting of administrative efficiency, and the fiscal overhaul of local government administration.

At the meeting, Chen Tain-jy, minister of the Council for Economic Planning and Development, pointed out that Taiwan’s tax to GDP ratio is lower than that of the United States, Japan and European countries, and suggested that it be adjusted upwards. Several ministers echoed their support for an increase at the appropriate time and called for the implementation of reasonable targets.

The MOF noted in its report that Taiwan’s current tax to GDP ratio stands at 14.3 percent, and suggested that it not be lowered in the future. In recent years, the tax to GDP ratio stood as low as 12.3 percent to 12.6 percent. Officials noted that a reduction of just 1 percentage point in the ratio would lead to a drop of NT$100 billion in government revenues.

However, some officials expressed a more reserved opinion, saying that appropriate accompanying measures must first be worked out before deciding on an upward adjustment in the tax to GDP ratio.

Minister of Economic Affairs Yiin Chii-ming said that during economic downturns, the government must lower taxes to attract business investment while at the same time working to stimulate demand and protect disadvantaged groups. As a result, government expenditures increase while revenues decrease. However, he continued, this is only a short-term phenomenon, noting that as the economy turns around, the gap between spending and income will narrow.

Vice Premier Chiu Cheng-hsiung said that any policies related to the tax to GDP ratio should be flexible, adding that tax revenues will begin to increase as the economy rebounds. (SB)