Measures raising funding allocations to local governments clear Legislature

Taipei, Dec. 21 (CAN) Amid clashes between lawmakers from Taiwan's ruling and opposition parties, amendments on revenue allocations were approved by the Legislature late Friday night, allowing local governments to secure an additional NT$375.3 billion (US$11.5 billion) in funding from the central government.

It marked the first time in more than 25 years that the Legislative Yuan had revised the Act Governing the Allocation of Government Revenues and Expenditures.

Lawmakers of the opposition Kuomintang (KMT), which proposed most of the passed amendments, and the Taiwan People's Party (TPP) hoped the new law will return more revenue to local governments to support their public work projects. Ruling Domestic Progressive Party (DPP) legislators, on the other hand, said the changes will squeeze the central government's budget.

Under the current practice, the central government is allocated 75 percent of the country's total tax or other revenue, while local governments are given 25 percent of available funding, compared with a 60-40 percent allocation ratio before 1999.

The amendments proposed by opposition lawmakers aimed to allow local governments to take back funds under the previous 60-40 percent allocation ratio.

Among the approved amendments, 11 percent of income tax revenue will be allocated to local governments, while after paying uniform invoice lottery winners, business tax revenue will be completely given to local governments.

Currently, 10 percent of income tax revenue and 40 percent of business tax revenue after deduction of duly appropriated uniform invoice prizes go to local governments.

The newly revised law also stipulates the land value increment tax belongs to special municipality and county and county-level city taxes and the growth in land value results from efforts made by local governments, so the tax should completely go to local governments.

The change came in contrast to the current regulation which allows the central government to allocate only 20 percent of the land value increment tax revenue to local governments.

The KMT legislative caucus expected the revised revenue allocation rules will help local governments to improve their financial conditions and tilt toward a balance between urban and rural areas around Taiwan.

The TPP caucus also said the amendments are expected to allow local governments to secure more funding for their construction projects.

However, Wu Szu-yao (吳思瑤), secretary-general of the DPP legislative caucus, said the newly revised law was unlikely to deliver a fair revenue allocation and would hurt Taiwan's fiscal disciplines.

In response to the passage of the amendments, the Ministry of Finance (MOF) expressed concerns that the allocation of an additional NT$375.3 billion to local governments will create a severe adverse impact on the fiscal conditions of the central government and undermine the welfare of the entire country.

The MOF said that the new revenue allocations could impact the implementation of policies related to economic development, social welfare, national defense, and social security.

It also blasted the opposition parties for a failure to have thorough discussions before pushing the amendments through the legislative floor.