By Ted Chen, The China Post
TAIPEI, Taiwan — Finance Minister Chang Sheng-ford (張盛和) yesterday stated his intention to hold the nation’s public-debt-to-gross-domestic-product (GDP) ratio at 38.6 percent, while attending the ruling’s party’s Central Standing Committee Meeting.
Chang also cautioned the government to further lower the figure, ideally retaining a 2-percent margin below the debt ceiling, to leave the nation more elbow room in times of need.
Following Chang’s report President Ma Ying-jeou replied that the central government’s 38.6-percent debt usage pales in comparison to numerous nations with debt-to-GDP ratios reaching 60 percent, 70 percent, and even 200 percent. “Those nations are doing just fine despite high borrowing,” said Ma, while spurring Chang to borrow more. Ma continued to question Chang’s concerns over more borrowing, to which Chang cited the stipulations of R.O.C. law.
According to the Public Debt Act (公共債務法), the debt-utilization limit imposed on the central government is set at 40.6 percent of GDP. Standing at 38.6 percent, by law the nation may only add another 1.9 percent of debt, or NT$272.7 billion.
The government incurs an estimated annual revenues shortfall of NT$270 billion to NT$300 billion, said Chang. Under these conditions, additional borrowing would exceed limits allowed by law, he continued. If public borrowing exceeds the ceiling set by national laws, society will be exposed to tremendous uncertainty, said Chang. Borrowing May Continue at 2 Percent of GDP According to Chang, fiscal conditions are already being strained by the high cost of various policies, including the transition towards an all-volunteer arrangement for the armed forces and a twelve-year national education system.
Chang stated that however challenging, the only remedies lie in initiating sound expansionary policies to create more sources of state revenues. An overhaul of the tax system may be required, said Chang, including structural adjustment of the tax base to ensure more revenue sources. Meanwhile, Chang advised that the budget may be funded by “other means” in addition to borrowing.
Borrowing may continue at 2 percent of GDP, or NT$111 billion, advised Chang yesterday. The remaining NT$190 billion required by the budget may be generated through other means such as the release of government-held shares of state-run companies to the open market, and the repurposing of idle land plots held by central and local governments.
Over NT$1.7 trillion worth of assets are being held dormant by the government, which could be allocated towards more astute management to render greater benefits for the public, urged Chang. Currently while assets are abundant, the government is constrained by inadequate cashflow, Chang emphasized.