Ko proposes reforms to boost Taiwan's financial resilience

Taipei, Dec. 19 (CNA) Taiwan People's Party (TPP) presidential candidate Ko Wen-je (柯文哲) on Monday criticized Taiwan's low tax revenues as potentially risky and advocated reforms to strengthen Taiwan's financial resilience.

Unveiling his financial policies at a news conference, Ko said Taiwan is faced with financial risks due to rising tensions with China, while the low ratio of government tax revenues to gross domestic product (GDP) has left its finances vulnerable to a potential crisis.

He claimed that due to the low ratio of tax revenues to GDP, the government has become more dependent on the central bank's earnings to make up for the government's tax revenue shortfall.

According to the Ministry of Finance (MOF), Taiwan's tax revenue, excluding contributions such as employer payments to cover employee labor and health insurance premiums, totaled NT$3.25 trillion in 2022, accounting for 14.3 percent of GDP in 2022.

That was lower than the United States' 21.6 percent, South Korea's 23.8 percent, Germany's 24.7 percent, the United Kingdom's 28.2 percent, Canada's 28.5 percent, France's 31.1 percent and Denmark's 41.8 percent, but higher than Singapore's 12.6 percent, MOF data showed.

In 2022, the central bank's contribution of its earnings on assets to Taiwan's treasury totaled NT$175.08 billion (US$5.59 billion), up from NT$165.17 billion in 2021, according to the bank.

Those contributions from the central bank equaled about 0.77 percent of GDP, or 5.4 percent of tax revenues in 2022.

Ko also said that if elected he would try to improve the central bank's decision-making transparency and hold it accountable for its policies.

The central bank should make public its market intervention data, including the amount it spends to intervene on foreign exchange markets, he said.

At the end of November, Taiwan's foreign exchange reserves hit a new high of US$567.52 billion, up US$6.44 billion from a month earlier.

The increase came as the central bank stepped in to buy the U.S. dollar to prevent the further decline of the greenback, bid down over expectations that the U.S. Federal Reserve has ended its series of interest rate hikes to combat inflation.

Taiwan's central bank does not disclose how much it has put into the market to intervene.

In November, the U.S. dollar fell NT$1.159, or 3.71 percent, to close at NT$31.260 against the Taiwan dollar, and without central bank intervention, the greenback would have weakened further.

Ko also proposed to set up a financial stabilization commission to prevent any systematic risks in financial markets and establish an advance warning system to fend off headwinds.

In addition, he said local financial markets lack a mechanism to protect consumers from fraud and argued that it was necessary for the government to establish a financial consumer protection bureau.

Such a bureau, he said, would monitor the trading of financial goods and services, improve consumer knowledge about the market, raise their awareness of fraud prevention and protect their personal information.

Meanwhile, though Ko criticized Taiwan's relatively low tax revenues, he made no mention of raising taxes or changing the tax code.

Instead, to make better use of the government's assets, Ko said he would use 10 percent of Taiwan's forex reserves to set up a sovereign wealth fund, which he argued would help Taiwan build close links with global financial markets.

About 60 lawmakers across party lines, including TPP Legislator Wu Hsin-ying (吳欣盈), who is Ko's running mate in the Jan. 13, 2024 presidential election, have proposed an amendment to the Central Bank of the Republic of China (Taiwan) Act that would allocate a portion (10 percent) of Taiwan's forex reserves to a sovereign wealth fund.

In May, central bank Governor Yang Chin-long (楊金龍) said at a legislative hearing the central bank was always open to discussing the establishment of a sovereign wealth fund in Taiwan.

But he said the government needed to find funding sources other than the country's forex reserves, as managing such a sovereign wealth fund was not the central bank's job.

The central bank said in a report to the Legislative Yuan in May that the government should write a special law exclusively for a sovereign wealth fund instead of amending the central bank act to preserve the bank's independence.

Ko also proposed that the Financial Supervisory Commission, the top financial regulator in Taiwan, set up a financial technology development bureau to facilitate the pace of introducing artificial intelligence applications to financial markets.

Finally, the TPP candidate contended that the current central bank's policy to keep interest rates low had paved the way for skyrocketing home prices, noting that mortgage rates had dropped 80 percent in the past two decades while home prices had soared 263 percent.

He did not say, however, if he advocated raising interest and mortgage rates. Instead, he criticized a plan by Hou Yu-ih (侯友宜), presidential candidate of the opposition Kuomintang (KMT), to allow young people to take out a mortgage of up to NT$15 million from banks without having to make a down payment.

Hou argued that down payments represent a major barrier to home ownership and that bypassing it would offer better access to buying a home for younger adults.

To be eligible, individuals would have to be under 40 years old, a first-time home buyer, have a good credit score, and make an annual income that falls under a fixed amount, which has yet to be announced.

Criticizing Hou's policy, Ko said the real problem was the high cost of buying a home and that young home buyers would still have to shoulder a long-term financial burden of potentially 40 years to pay their mortgage even with putting up a down-payment.

Ko has advocated providing incentives to help people rent rather than promoting home ownership.