The Executive Yuan has proposed amendments to the Public Debt Act relaxing the government debt ceiling, currently set at 48 percent of the nation’s gross national product.
This revision will set the borrowing cap at 40 percent of the GNP for the central government and 200 percent of annual spending for local governments. The combined debt ceiling is expected to reach 52 percent of the GNP and therefore increase total allowable of government borrowing by NT$500 billion (US$15.47 billion).
Kuomintang Legislator Alex Hrong-tai Fai and other lawmakers had advocated reducing the central government debt limit from 40 percent to 39 percent of the GNP, and the local government ceiling from 250 percent to 200 percent of annual spending, for an approximate combined figure of 51 percent of the GNP.
Both Minister of Finance Lee Sush-der and the Directorate-General of Budget, Accounting and Statistics, however, have come out in support of the Cabinet’s version.
The Alliance for Fair Tax Reform said tying the local debt cap to annual spending is contrary to international practice and would create unlimited, soaring debt, putting the country at great financial risk.
In response, Ministry of Finance officials said they are confident that under the supervision of the DGBAS, as well as of city and county councils, there is no danger of government debt running wild.
The National Treasury Agency under the MOF noted that as of the end of April, the central government’s cumulative debt stood at NT$4.3 trillion, while local governments owed over NT$600 billion. Both figures fall within the legal limit.
However, data from the Legislative Yuan’s Budget Center, provided by KMT Legislator Lo Shu-lei, show that government debt already on the books plus hidden liabilities actually amount to NT$14.5 trillion, already exceeding the legal cap, indicating that the MOF figures fail to reflect the true situation.
NTA officials said some local government debts are already on the verge of breaching the limit. If the amendments are not passed, next year’s fiscal budget could be stillborn.
Lee stressed that government debt is kept within bounds by the control of cash flow and compulsory paybacks. Even if by a broader definition government debt reaches NT$15 trillion, national assets are as high as NT$22 trillion, which means that the country’s capital situation can be considered healthy, he added.
“Being in debt is not a bad thing,” Lee said. “We have to think in terms of financial management. Just as businesspeople cannot rely completely on their own capital to expand their operations and thus have to borrow funds, so must a government, though it must do so more conservatively.” (AW-THN)