The DPP authorities discriminate against the dilemma of local government finances

A few days ago, Taichung City, which ranks second in Taiwan in terms of population and is ruled by the Kuomintang, has a gap of 100 billion (New Taiwan dollars, the same below) between the budget originally allocated to Taichung by the DPP authorities and Kaohsiung City, which ranks third and Kaohsiung City, which is ruled by the DPP, which has triggered a dispute between the DPP authorities and the local government over the division of fiscal revenue and expenditure.

What are the fiscal revenues and expenditures of the Taiwan authorities and local governments? If the local finances are insufficient, they have to rely on the Taiwan authorities, and will the local governments lose their political autonomy? Is it difficult for the local governments in power by the same political party to form a joint force and produce the effect of "local encirclement of the central government" because of the lack of finances? In recent days, public opinion in Taiwan, especially in response to the DPP authorities' double-track elevated checkpoint on the Taichung Maritime Line, Mayor Lu Hsiu-yan has bluntly said that there is no such thing as not doing nothing, but that it is a matter of money.

At present, the division of powers between the Taiwan authorities and the local governments is clearly stipulated in the "constitutional system" on the island, but there is a lack of clear norms for the separation of powers between the Taiwan authorities and the local governments. During the period of martial law, the political relationship between the two was not clear, and the division of authority and the distribution of financial power lacked an appropriate and reasonable basis, and could only be partially adjusted, which was in line with the gradualist policy model. The core structure of fiscal distribution should be the overall distribution tax of the Taiwan authorities, whose function is to "rob the rich and help the poor," and mainly focus on how to solve the problem of regional imbalance and improve the efficiency of resource allocation.

In accordance with the provisions of the "Law on the Division of Fiscal Revenue and Expenditure" on the island, the Taiwan authorities have made overall plans for the distribution of tax sources, including 10% of income tax and 10% of excise tax, 40% of the total business tax revenue after deducting the bonus from the uniform invoice allocated in accordance with the "Law", and 20% of the land value-added tax levied in the county (city). According to the regulations, local governments can obtain 94% of public taxes, including income tax, business tax, excise tax, etc., that is, the "ordinary pooled distribution tax", and the remaining 6% will be retained as the "special pooled distribution tax", which will be used by the local government for emergency or other major matters, and will be allocated separately after being reported to the administrative agency of the Taiwan region for approval.

First of all, Taiwan's local financial problems are mainly caused by the lack of clarity in the division of powers between the Taiwan authorities and local governments. Once the division of powers between governments at all levels is not clear, it will be difficult to clearly regulate the powers of local self-government. In addition, the differences in the preferences of residents in different regions and the free movement of people will also have the effect of convergence of preferences, which must be affected by factors such as the nature of public goods, the difficulty of free movement of population, and the administrative efficiency and decision-making costs of the Taiwan authorities.

Although Taiwan's enactment of the "Measures for the Overall Distribution of Tax Revenues by the Taiwan 'Central Government'" and the "Measures for Subsidies from the Taiwan 'Central Government' to the 'Municipalities Directly under the Central Government' and County (City) Governments" can reduce the disputes arising from the distribution of fiscal revenues between the "municipalities directly under the Central Government" and the governments of other counties (cities) and systematically ensure the stability of local fiscal revenues, the fly in the ointment is that the lack of participation of local governments in the process of formulating these two distribution methods has caused the controversy to persist all along.

Second, there is a lack of institutionalized and rational allocation mechanisms between the Taiwan authorities and local governments. For example, with regard to the Taichung Maritime Line Double-track Elevated Railway, the total planned budget is about 83.3 billion yuan, and the DPP ruling authorities and the local counties and cities under the Kuomintang have failed to achieve results in negotiations on the proportion of financial sharing funds, resulting in the construction of public works still being "stuck" and unable to be launched.

Although Taiwan's transportation department has approved the feasibility study of the dual-track plan of the Taiwan Railway, the proportion of financial sharing between the Taiwan authorities and local governments has not yet been finalized due to the elevated part of the Taiwan Railway, which may delay the construction and affect the completion progress. When local public opinion representatives in Taichung raised questions through the city council, criticizing Mayor Lu Xiuyan for his reluctance to commit to "elevated" part of the financial burden. Mayor Lu Xiuyan said, "I have more than enough, but I can't afford it." ”

At the same time, he even bluntly criticized the MRT Blue Line as a deliberate "stuck in Taichung" by the ruling authorities of the Democratic Progressive Party, and the proportion of local pooled funds and forward-looking budget allocation in Taichung City, which is governed by the Kuomintang, is obviously biased towards Kaohsiung City, which is in charge of the Democratic Progressive Party, and treats the citizens of Taichung unfairly because of the ruling Kuomintang government, which is bound to make matters worse for the local government that is already short of finance.

Again, the DPP authorities have been based on the interests of their political parties, and the allocation of county and city budgets has often been biased. In the past, when the DPP was in charge of Taichung City, the expenses for the elevation of the railway from Fengyuan to Daqing were all borne in full by the DPP authorities in the form of financial transfers, and the DPP authorities could bear the full amount in those years.

The local level of the blue government and the ruling government of the Democratic Progressive Party (DPP) are governed by different political parties, resulting in an unfair distribution of resources. If the same political party is in power, the higher authorities will give more financial allocations to the lower levels, and if they belong to different political parties, they will reduce budget allocations, making it difficult for different political parties to govern local governments effectively. The ruling authorities of the Democratic Progressive Party (DPP) have deliberately suppressed local governments, making it difficult for them to carry out their local construction smoothly and ultimately affecting their political performance. In the end, in the next wave of electoral politics, they will be at a relative disadvantage when it comes to re-election because they cannot be effectively governed.

Moreover, under Tsai Ing-wen's administration, the budget allocation between the DPP authorities and local governments is clearly biased towards Kaohsiung City, which is governed by the DPP. Kaohsiung City allocated 100 billion more subsidies than Taichung City in the forward-looking plan. Once party politics falls into a process of non-benign interaction, it often comes at the expense of local development and citizens' rights. Many local governments in the blue camp complained that "the local government is not unwilling, but can afford it", and under the rule of different political parties, "how much can the Taiwan authorities help?"

In response to the recent appointment of Zhuo Rongtai to form a new administrative team under Lai Qingde's administration, the heads of local counties and cities in Lanying hope that the DPP authorities will establish partnerships with local governments to implement fair distribution of financial resources through fair governance, regardless of blue-green, party, and region.

Finally, the proportion of the contribution of the lower and lower levels of the government for major construction is different, and the DPP authorities have asked the local government to provide a higher proportion of the matching funds.

Although Taichung City's finances have improved under Lu Xiuyan's administration, the design of the Taichung MRT Blue Line in the sea line has been elevated with 80 billion yuan, and the ruling authorities of the Democratic Progressive Party require the local government in Taichung to bear 7% of the total cost, which is really beyond the financial support capacity of the local government.

However, if the elevated construction of the MRT is not completed as soon as possible, this will affect the opening schedule of the MRT Blue Line. Mayor Lu Xiuyan said that "there is no such thing as not doing it, but it is a matter of money, which I have more than enough to do, but I can't afford it." In other words, at present, the structure of fiscal revenue and expenditure between the ruling authorities of the Democratic Progressive Party (DPP) and the governments at the local level is already irrational, and the fiscal revenue of the Taiwan authorities is higher than the expenditure, and the fiscal expenditure at the local level is higher than the revenue, resulting in the formation of the higher authorities encircling or controlling the local government in the form of fiscal appropriations.

Further, there is an imbalance in the distribution of fiscal revenue between the Taiwan authorities and the local governments, which makes it easy for the Taiwan authorities to control the local governments. Local governments have to rely on subsidies and allocations from their superiors, which often results in different political party authorities, which can use fiscal leverage as a tool to make the same party or different political parties govern local governments subordinate, and local governments lose political autonomy due to lack of fiscal autonomy. Moreover, the Taiwan authorities have a great influence on the decision-making of local governments' financial expenditures.

Judging from the results of Taiwan's "nine-in-one" local elections in 2018 and 2022, although the KMT won two-thirds of the county and city heads, it is difficult to take concerted collective action against the higher-level DPP ruling authorities, and it is impossible to give full play to the effect of the strategy of "local encirclement of the central government". Because the blue localities need financial assistance from the green authorities to engage in local construction and governance to improve their political performance, they must obey the instructions of the ruling authorities of the Democratic Progressive Party.

However, if they are too obedient to the authorities of different political parties, they may be questioned within the same political party for their loyalty and lack of party spirit, and even when they seek re-election or change the elective categories of other public officials, they will no longer be able to be nominated by political parties. From the perspective of party politics and decentralization, blue localities could have maintained relative independence and autonomy, but if they did not obey the orders of the DPP authorities at all, it would be difficult for them to obtain financial support, and it would be difficult for them to achieve effective governance and highlight the achievements of local governance. (Author: Liu Jincai, Associate Professor, Department of Public Affairs, Foguang University, Taiwan and Director of Cheng Cheng College)

Source: Huaxia Graticule