President Chen Shui-bian presided over the fourth meeting of the second "Presidential Economic Advisers Task Force" this morning. Besides listening to a report by Chung Hua Institution for Economic Research President Chen Tain-yi about the current economic situation and the Vice Premier Wu Rong-I as well as the Task Force member Ko Cheng-en's report on the directions to take in the current financial reform, the president also exchanged views with them on related issues and announced his decisions shortly after.
The president's opening speech is as follows:
Influenced by the cooling off of global economy, high international oil price and the U.S. Federal Bank modifying its interest rate eight times since June last year, the Directorate General of Budget, Accounting and Statistics has lowered the first quarter and the whole year's economic growth prediction respectively of 2.54 percent and 3.63 percent. This shows that current economic development's momentum is facing stiff challenge. The government must make a breakthrough in its actions to deal with the impact of globalization and the expansion of Chinese economic powers.
The economic advisers who attended this meeting are all the elites in this domain. I hope that each of you would offer your views and suggestions so that government agencies may benefit from your advice.
According to the agenda today, we will first let Mr. Chen Tain-yi, president of the Chung Hua Institution for Economic Research, to start with his analysis on the 'current economic situation'.
After the reports and discussions, the president announced his decisions as follows:
After analyzing the current economic situation, our country is facing three challenges. First, it is the manufacturing industry's relocation that caused the ratio of the goods to be produced abroad to rise significantly. The statistics at the end of the year 2004 showed that 37.5 percent of the goods were produced abroad, which was three times as much as in 1999's 12.2 percent. Among that, computer and communication products represent as much as 70 percent. This is also why our country's exportation growth is lower than that of South Korea during the past recent years. The economic development authorities will have to work out a plan to sufficiently improve the situation.
Secondly, the service industry's productivity already represents 69 percent of the country's economic growth, but its further growth is restricted by the industry's environment. This includes restrictive taxation regulations and outdated laws and regulations. Especially, the taxes on local companies' new financial products are even higher than that of foreign companies. We have to correct this situation.
Thirdly, national resources have to be integrated and efficiently used. National resources are limited. The use of it has to be discussed and modified according to the tremendous changes of the international economic situation.
Concerning the Executive Yuan Development Fund, Sino-American Fund, Postal Savings Fund and management policies of state-owned companies, the Executive Yuan should work out new strategies in order to boost efficiency for the benefit of the country.
Besides, concerning governmental financial reforms, I have emphasized many times that their urgency could not be further delayed due to consideration of social justice and the needs to improve governmental finance as well as increasing the savings amount. Though the Legislative Yuan has again shelved the Ministry of Finance's proposal to annul tax-free accord to servicemen and school teachers, we still cannot be discouraged. The success of the taxation law reform needs everyone's support. I am very happy today that the advisers have been studying these problems. After discussions with related government departments, I have decided to take the following steps:
1. Since there is insufficiency in tax base and a wide range of tax reduction items, the national's tax burden stands at just 13.6 percent as against the average rate of CECD nations' 27%, showing that the rate in Taiwan is rather low. The government must expand the tax base, adjust and simplify taxation laws, efficiently stamp out tax evasion so that the national tax burden can be modified to 15 percent in three years. For a medium and long-term goal, I hope that we could reach the healthier level of 18 percent.
2. The current consumption taxes are not fair. I hope that the authorities concerned can review the commodity tax and stamp tax to work out a more reasonable rate, possibly by raising the business tax by one to two percentage points to replace them.
3. In consideration of tax fairness and retaining the competitiveness of the businesses, government agencies concerned should work out a minimum income tax scheme eventually, and review the necessity of levying 10% in income tax from the surplus reserve after the government's financial situation improves.
4. In order to follow international trend and to keep local capital from fleeing the country, the level of inheritance tax and gift tax should be lowered to 40%. When the government's financial situation improves, consideration should be given to further lowering these taxes.
5. By analyzing the income tax's sources, labor income is found to account for three-fourth of the income while capital income accounts for one-fourth. This shows a lack of balance. The authorities concerned should study the possibility of levying income from investment in unlisted securities when the time is favorable.
6. Government resources are limited. Reviews should be made annually on incentives, subsidies and tax exemptions in order to make these promotional efforts more effective and beneficial to the industries. In addition, giving tax exemption or reduction to individuals on expenses of professional training or studies is also called for to encourage personal advancement.
7. Representing the people, I would like to thank each of you, advisers, for the efforts you have made. Thank you.