It came as a shock when Academia Sinica, the nation’s highest research institute, recently lowered its forecast for Taiwan’s gross domestic product growth this year to 1.94 percent.
Academia Sinica is the first research institute to cut its forecast for 2012 to below 2 percent amid concerns over the global economic slowdown.
President Ma Ying-jeou immediately instructed the Executive Yuan to come up with substantive policies to stimulate economic growth, while Premier Sean Chen said he will take "tangible" action as soon as possible.
Due to the European debt crisis, Taiwan’s exports have been in decline for four consecutive months and the Executive Yuan has described the situation as "severe" on several occasions.
The dire situation can be traced to the three engines of the country'seconomic growth -- exports, private investment and private consumption --all of which have stagnated.
Chen said in mid-June that when other countries opted to “grow” during the European debt crisis, Taiwan could not be left behind andshould seek stable economic growth via public infrastructureexpansion or expansionary financial policy.
But as the nation’s debts have reached nearly the legal ceiling, the government’s room for financial policy has been limited, as evidenced by the projected budget for the central government in 2013 being set at an expenditure of NT$1.93 trillion and a revenue of NT$1.73 trillion. The public infrastructure budget, meanwhile, has beenproposed at NT$175 billion, a 10-year low.
Thus, Taiwan is caught between “growth” and “austerity,”although the experiences of the United States and Europe have shown that“stablegrowth”is what the government should be aiming for in the short term.
During the 2008 global financial crisis, the government adopted an expansionary financial policy for three consecutive years, which enabled the country to emerge from the shadow of the crisis and even set a record 10.72 percent GDP growth in 2010.
Expansionary financial policy can involve tax cuts, debt-raising or financing for investment.
Tax cuts, however, are unfeasible, as they involve changes tothe tax system. Taiwan’s debts are nearly at their legal ceiling,but still have some room for maneuvering. The government should alsowork out a mechanism to promote financing for the private sector.
The ruling Kuomintang recently proposed easing its policies toupgrade overall economic efficiency, another necessary move.
The government should think twice about its adoption of a capital gain tax on stock investment and increasing the minimum wage, which are policies that will impact the faith of enterprises.(Editorial abstract -- July 20, 2012)
(By Lilian Wu)