Enacted Summary
The most recent comprehensive account of Taiwan’s performance against fiscal policy transparency standards is a report published by Oxford Analytica (OA) in 2006. It states that, overall, Taiwan has "enacted" these standards and has made progress over the previous year. Taiwan is not a subscriber to the International Monetary Fund's Special Data Dissemination Standard, but nonetheless complies with most of its requirements for the coverage, timeliness, and periodicity of its fiscal data and for publishing advance release calendars. Political contentiousness between the executive and legislative branches stalled some reform attempts, and left the Control Yuan (the Central Audit Office) without any members for three years between 2005 and 2008, limiting transparency. On the other hand, OA reports that the appointment of a new finance minister in 2006, who has expertise in tax reform, represents a sign of possible further fiscal policy reform.
General Overview
The most recent comprehensive analysis of Taiwan’s performance against fiscal policy transparency standards was performed by Oxford Analytica (OA) in 2006. OA notes that some progress in fiscal policy transparency has been made over the previous year, earning the country a rating of "enacted." OA reported that the Taiwanese government "indicated a desire to improve government efficiency and fiscal reform by holding a conference in the summer of 2006 on Sustaining Taiwan's Economic Development" (p. 502). The meeting failed to reach consensus on the legislative proposals arising from that conference, however. OA does note apparent progress in dealing with tax evasion. Both the Legislative Yuan and the Ministry of Finance (MoF) are working on ways to simplify taxes and broaden the tax base. The 2006 appointment of a new finance minister with expertise in taxes is lauded by OA as lending an additional push to tax reform efforts. OA notes that Taiwan's Financial Supervisory Commission (FSC), subject to much scandal in the previous year, is now exhibiting greater discipline and "is functioning better as an organization" (p. 502). OA also reports on recent efforts at financial consolidation, stating that privatization has proceeded more slowly than initially expected as a result of politics and the opposition of vested interests. The three banks under full government ownership were slated for privatization in 2008. However, as of December 2009, one bank had merged with another, and the remaining two had not yet been privatized. Plans to transition to the use of accrual-based accounting in 2007 were stalled, according to OA, and Taiwan's fiscal policy formulation does not include official fiscal risk or contingent liability estimates. Nonperforming loans, while reduced from the levels attained early in the decade, are nonetheless on the rise in credit-card lending from state banks. OA adds that the government has raised the possibility of creating an anticorruption agency similar to Hong Kong's Independent Commission against Corruption. Finally, OA reports that new appointments to the fiscal auditing body, the Control Yuan, have been stalled due to political contentiousness, but that audits are still being carried out by the regular staff. The Control Yuan’s 2008 Annual Report, also known as “A Brief Report on the Work of the Control Yuan,” revealed that the impasse lasted three years, with members finally being reinstated in August 2008.
The Principles
CPClarity of roles and responsibilities.
The 2006 OA report rates Taiwan's performance on this principle at "compliance in progress" (p. 503). The structure and function of the Taiwanese government is defined in the 1946 Constitution of the Republic of China, as amended through 2005. There are five branches of government, called "Yuans": executive, legislative, judicial, control, and examination, each of which is broken down into numerous subordinate units. Within the Executive Yuan there are eight ministries. Since 2005, when a Constitutional amendment was passed, the Legislative Yuan has been a unicameral legislature (the National Assembly was eliminated). At the local government level, there are counties, municipalities, and "special municipalities," the latter level being reserved for the two largest cities, Taipei and Kaohsiung. Central and local government responsibilities are clearly laid out in the provisions of the Constitution. OA reports that, in 2006, a Conference on Sustaining Taiwan's Economic Development was convened to consider long-term, structural economic issues. This led the Executive Yuan to create an "Economic Development Vision for 2015" to be implemented in three phases. However, implementation requires the completion of an ambitious legislative reform schedule involving 17 new laws and 37 revisions. Success in meeting the conference goals, however, may be hindered by political party rivalries, and OA notes that "it is not certain that what was agreed upon at the conference will be passed in the Legislative Yuan" (p. 503). However, a November 2009 press release from the Public Construction Commission under the Executive Yuan indicated that it was moving forward with the first phase of this development plan.
The Directorate-General of Budget, Accounting and Statistics (DGBAS) has the job of managing budget and extra-budgetary activities. The DGBAS reports directly to the Executive Yuan. OA reports that the DGBAS is responsible for spending, whereas revenues are overseen by the MoF, National Treasury Agency (NTA) and other MoF-subordinate agencies. The spending ministries work from the basis of "foundational budgets" allocated to each department without specific earmarks. This lends a degree of autonomy to the ministries, according to OA. In addition, there are a number of specialized nonprofit funds, such as the Agricultural Stabilization Fund and the Nuclear Waste Disposal Fund, that cover the spending needs for particular government commitments. OA notes that there is less information available regarding the funds than is provided for regular budget activities. The MoF provides fund details every three months. The funds maintain budget books that must receive Legislative Yuan approval, as is the practice for state-owned enterprises as well. Transfers to local governments are treated as ordinary subsidies. At the lower levels, a sub-local government's funding is based on its land area, population, and financial capability, and may be spent as local officials see fit, within the confines of an established regulatory framework. OA reports that they can also borrow and issue bonds, within established limits. The official budget contains a special "disaster reserve fund," but its allocation is subject to regulations of the legislature. OA notes that there is still some opacity to the way that the roles and responsibilities are divided across the levels of government and government agencies, attributing this to "overlap and infighting" (p. 504). While the OA report acknowledges that some "double-counting" does go on, it states that it is "easily identified" (p. 504).
The government agencies implicated in fiscal and monetary policy are the DGBAS, the MoF, and the Central Bank of China (CBC). The central government budget includes 24 State-owned Enterprises and 97 nonprofit public institutions, together comprising 16 percent of revenues. The Financial Supervisory Commission (FSC), an independent, cabinet-level agency, oversees Taiwan's financial institutions. According to OA, this is a departure from prior practice, whereby the FSC's authority was split over multiple agencies. OA finds this arrangement to have been "only partially successful" (p. 505). It has been criticized for being prone to micromanagement and over-regulation and for lacking bureaucratic discipline. An insider trading scandal erupted in 2005 that involved the FSC, damaging its credibility. Another relatively recent institution, the Resolution Trust Corporation (RTC), has been created to deal with problems in the banking sector. OA notes that there has also been government encouragement of the use of public-private initiatives for infrastructural projects and a two-stage move toward privatizing state-owned banks. Progress here has been slow, and the 2007 deadline for completion was pushed back to 2008. As of late 2009, however, this privatization still had not occurred. Nonbank-sector privatizations, such as the Taiwan Tobacco and Liquor Corporation, have also lagged behind their proposed deadlines. OA reports that "progress in privatization was slower than expected due to political conflict" (p. 506). There have been some criticisms of the administration of the privatization process in the nonbanking sector, but OA notes that there are relatively transparent publications and statistics available from the government and there is a complaints bureau, the Investor Protection Center, in place. However, bank privatization is considered less transparent.
The legal framework governing central and local government budget activities comprises the 1998 Budget Act. The budget process consists of five stages, beginning with the Executive Yuan's draft annual program. After this, government departments put together their operational plans for the upcoming year. Once budget spending estimates and appropriations are approved, the DGBAS drafts the actual budget proposal. The final stage is adoption by the Legislative Yuan, after which the budget is signed into law by the president. The final budget document package includes the budget law itself, the accounting law, the provisional statute on execution, and the DGBAS's execution guidelines. Government revenue sources are laid out in the Law Governing the Allocation of Government Revenues and Expenditures, divided into national and sub-national categories. Tax laws can be found on the MoF website both in English and in Chinese.
According to OA, the recently appointed finance minister is a specialist in tax policy. OA attributes to the new minister "a renewed focus on reforming the tax system which includes reviewing income tax models and the auditing of taxpayers" (p. 507). Under consideration are measures to eliminate certain tax exemptions, a reduction on the capital gains tax on land, raising the value-added tax by a percentage point or two. The MoF is also looking at instituting an energy tax and, over the medium-term, abolishing the Stamp Tax and certain elements within the Commodity and Amusement Tax. A December 2009 review of the MoF website’s list of regulations, however, has not revealed any new laws directly related to these taxes. OA reports that an Alternative Minimum Tax was passed on businesses, effective in 2006. This was done to achieve long-run rationalization of the tax system. Other measures, including a flat-rate capital gains tax on financial products, are intended to cut down on widespread tax evasion. According to OA, a crackdown on tax evasion has already improved government revenues since 2004, and the government will likely achieve its tax revenue goal of 15 percent of GDP. However, a 2009 press release quotes a MoF report that put the figure at 14.3 percent.
ENOpen budget processes
The 2006 OA report states that Taiwan has "enacted" this principle (p. 511). The DGBAS works with the Council for Economic Planning and Development (CEPD) to set fiscal objectives, which "are stated clearly in the budget documentation" (p. 511) and are posted on the DGBAS website. The budget document includes an announcement of new policy initiatives. Line ministries provide more extensive data as it relates to their areas of responsibilities, also online. The budget also contains economic forecasts prepared by the DGBAS. OA notes that Taiwan employs a Keynesian model for its budget's macroeconomic framework. The advice of independent experts regarding the model and its predictions is frequently solicited. The DGBAS publishes online information regarding its models, assumptions, and predictions. Tax revenue trends are provided by the NTA. The DGBAS coordinates the information received from the various government agencies "so as to produce a unified budget estimate" (p. 511). A committee of academic, government, and private sector experts review the budget's fiscal forecasts and assumptions. According to OA, "the DGBAS compiles central government semi-annual and annual financial reports. These reports are submitted to the National Audit Office for cross-examination, and the reports are submitted to the Legislative Yuan for approval. The statistical information available on the budget is generally deemed to be consistent, thorough and reliable" (p. 514).
OA notes that the budget does not include any comprehensive fiscal risk assessment, although it does cover some risks (e.g., pension fund obligations) and offers a general statement of how risks are to be addressed. The MoF does occasionally commission academic and private research institutes to carry out studies of fiscal risk. According to OA, the biggest risks currently facing Taiwan are the "contingent liabilities stemming from government departments, medical insurance and the pension debt" (p. 512). This has been partially addressed by raising the retirement age to 60 and pursuing other fiscal reforms that should add further limits to the pension plan. Government responsibility for nonperforming loans is another area of difficulty. They are now defined in accordance with internationally recognized standards. However, the change in definitions has made past-to-current data comparisons difficult. OA does note that "one area where progress could be made with risk assessment is exogenous shocks" (p. 512) such as earthquakes, epidemics, or energy-sector price shocks, given Taiwan's strong dependence on fuel imports. As with fiscal risk, the budget documents are silent on fiscal sustainability. A dramatic increase in Taiwan's public debt-to-GNP (from 5 percent to 33.1 percent over the 15 years since 1990) has given rise to concern. To address this, OA reports, the MoF is taking short-term steps in the area of tax reform, and the goal is a balanced budget by 2011.
A nonmember of the International Monetary Fund (IMF), Taiwan nonetheless "largely complies with international standards on the presentation of budgetary data" (p. 513), according to OA. Central government and public sector budget data is reported on a net basis. The data reporting methodology is provided to the public by the DGBAS and the Central Government Agency Budget Implementation Guidelines. The DGBAS monitors budget execution by law. Execution procedures are laid down in two sources: the Central Government Budget Execution Provisional Statute and the Budget Execution Guidelines for Central Government Agencies and Subordinate Agencies. The DGBAS currently combines accrual- and cash-based accounting methods, but has been considering transitioning over to a fully accrual based system. At present, this is still under consideration. The Accounting Act of 1936 (as amended through 2002) provides the legal basis for government accounting. The DGBAS is required to prepare a year-end general accounting report detailing revenues, spending, balance, and any changes, along with a performance analysis of the prior and current year plans.
ENPublic availability of information.
According to the 2006 OA report, Taiwan has "enacted" (p. 509) this principle. As a nonmember of the IMF, Taiwan does not publish its data on the Special Data Dissemination Standard (SDDS) website, but it does follow the SDDS for the economic and financial data it makes available. OA finds that Taiwan's data is largely SDDS compliant regarding timeliness, coverage, and periodicity. A December 2009 review of the DGBAS website, where Taiwan’s metadata is provided, reveals that Taiwan continues to comply with most parts of the SDDS. It offers general and central government operations data and central government debt. As OA notes, and a December 2009 website review confirms, "the MoF also publishes its comprehensive Monthly Statistics of Finance online, which covers major financial and economic indicators, revenues and expenditures of the National Treasury; and net tax revenues by item, district and commodity" (p. 509). In addition, the MoF website offers access to its Advance Release Calendar, Yearbook of Tax Statistics, and Yearbook of Finance, the latter two of which provide summary data from the prior fiscal year.
The MoF also publishes the actual budget online in both Chinese and English, offering performance results for the prior year and estimated outcomes for the upcoming two years. Historical data is also available on the website. OA notes that "all central government operations are accounted for in the budget documents with the exception of the classified budgets of the Ministry of Defense, the Ministry of Foreign Affairs, and the National Security Board" (p. 509). The MoF provides monthly data on the central government debt, divided into domestic and foreign. According to OA, the definition of the national debt does not adhere to international standards, resulting in a lower national debt figure than would otherwise be the case. The report adds that the debts of nonprofit government funds are not included in the government debt amount. While the information can be accessed publicly, OA notes that "familiarity with the data is needed to gain complete understanding" (p. 510). OA reports that, as of 2004, the MoF began requiring all government levels to provide a public debt table into their final reports. Once these have been collected and edited by the MoF, they are posted in a report on total government debt on the NTA website. At least one-month's advance notice is provided of the actual dates on which central and general government operations and central government debt will be posted on the MoF website. OA adds that "the DGBAS posts a schedule that gives information-due days, and adheres to its timetable" (p. 510).
ENIndependent assurances of integrity.
The 2006 OA report states that Taiwan has "enacted" this principle (p. 515). Although not a member of the IMF, Taiwan complies with most SDDS requirements for coverage, periodicity, and timeliness of data. This, according to OA, is Taiwan's "clearest guarantee of the quality of [its] fiscal data" (p. 515). The budget data, as well as the data provided in the Yearbook of Finance and Yearbook of Tax Statistics, includes statements of policy commitments, macroeconomic developments, and recent trends in revenues and expenditures. Fiscal audits are governed by the 1998 Law of Audit, and are the overall responsibility of the Control Yuan. Within the audit system, the National Audit Office handles central government finances and related institutional audits. Other divisions handle the audits of municipalities, counties, and the special municipalities. In addition, the law provides for audits of public enterprises in which the government holds a majority stake. The Control Yuan has disciplinary authority. However, there was a three-year period between 2005 and 2008 when the agency had no members due to political infighting. Staff carried on with duties, but work was incomplete during this timeframe. The Auditor General, a presidential appointee that must be approved by the legislature, serves for a six-year term and is constitutionally independent. He has the mandate to audit the financial statements of the central government each year. OA notes that "the results of the audits for the central government, regional governments, government enterprises, special funds, and other entities are published on the Ministry of Audit website" (p. 515).
The DGBAS carries out statistical functions. Directly subordinate to the Executive Yuan, it is independent from all other government departments. OA notes, however, that this still leaves in question its independence from cabinet influence. OA reports that Taiwan's fiscal information is generally thought to be reliable, but that certain other data are undergoing improvement, for example, data on the capital flows between Taiwan and the mainland. There is a nationwide system in place for conducting statistical work, called the National Budget, Accounting, and Statistics Network. According to OA, "the improved quality and scope of statistical data have led to their being used in economic modeling and forecasting by the DGBAS" (p. 516). Statistical publications by the DGBAS include the Monthly Bulletin of Statistics and the annual Statistical Yearbook.
Major-project procurement is overseen by the Public Construction Commission (PCC), founded in 1995 under the oversight of the Executive Yuan. The PCC has an Auditing Task Force but has no independent auditing agency. Beginning in 2000, the PCC created an online presence "to serve as a unified information source for tender solicitation and award announcements" (pp. 513-514). The Government Procurement Law of 1998 was established to set forth procurement relations and provides strong penalties for violations. Taiwan has followed the Government Procurement Agreement of the World Trade Organization since it became a member in 2002, with significant improvements in government-project transparency. Still, corruption remains an issue, and OA notes Taiwan scores 5.9 (out of a perfect 10) on Transparency International's (TI) 2006 Corruption Perception Index. This score has dropped to 5.6 in TI’s 2009 survey. OA reports that "the government tendering process continues in many cases to be rigged by 'special standards' that deviate from international best practice and force companies to take on various contingent liabilities" (p. 514). Finally, OA reports that ethical standards for public servants are covered by the Civil Servants Act and the Code of Conduct of Civil Servants. OA notes that although there has been a substantial reduction in corruption, it nonetheless "is perpetuated by a deeply entrenched culture of complacency and a tradition of kickbacks" (p. 508). According to OA, recent high-profile indictments indicate that the prosecutors "are able and prepared to carry out their duties" (p. 508). The FSC is reviewing the code of conduct set out by its own Ethics Office, but the OA report indicates no timeframe for the review's completion.
