The Executive Yuan Council passed a draft amendment to the Public Debt Act today and will send it to the Legislature for deliberation. Premier Sean Chen said the revision aims to ensure a sustainable fiscal policy for the country while enabling special municipalities to raise funds to pay for their long-term development and originate self-funded public infrastructure projects.
Increasing revenues and cutting expenditures are the two basic steps to address fiscal deficits, the premier stated. "Raising the debt ceiling would be the simplest response, but it also would have caused the most long-term damage," he said. "The Executive Yuan has taken into account the concerns of different municipalities, and this draft amendment is the best possible compromise among them."
Major revisions in the draft amendment are summarized as follows. The corresponding articles and paragraphs of the new document are cited.
1. Adjustment of national and local government debt limits
a. Previously, the combined outstanding public debt of the central and local governments could not exceed 48 percent of the average gross national product (GNP) over the previous three years. The central government's debt could not exceed 40 percent of the three-year GNP average. Local governments' total debt could not exceed 8 percent of the GNP average, with specific limits of 3.6 percent for Taipei City, 1.8 percent for Kaohsiung City, 2 percent for all counties and provincial municipalities combined and 0.6 percent for all county municipalities and townships combined.
The overall cap is now revised to 50 percent of the average gross domestic product (GDP) for the previous three years, with 41.2 percent for the central government, 7.25 percent for special municipalities and Taoyuan County (which is expected to become a special municipality next year), 1.43 percent for counties and provincial municipalities, and 0.12 percent for county municipalities and townships. (Article 5, Paragraph 1)
b. Specific public debt quotas have been determined for each of the special municipalities and Taoyuan County. Having deducted these governments' outstanding debts as of the last day of the month prior to enactment, and based on the indices most advantageous to each government—tax revenues for Taipei City, net debt per capita for New Taipei City and area size for Kaohsiung, Taichung, Tainan and Taoyuan—the proportion of the three-year GDP average which each government may still borrow is 0.22 percent for Taipei, 0.15 percent for New Taipei City and 0.1 percent for each of the other municipalities and Taoyuan.
In addition, these municipalities can further expand their debt limits based on their average ratio of self-funding to tax revenues over the previous three years. The Ministry of Finance (MOF) will annually announce whether municipalities' debt limits may be expanded. (Article 5, Paragraphs 2 and 3)
c. A fiscal year debt cap will be set for each local government based on its financial performance, taking into account its administrative needs and fiscal soundness. (Article 5, Paragraph 8)
2. Establishment of local debt warning and control mechanisms
a. When a local government's outstanding public debt exceeds 90 percent of its limit, it must submit a relief plan and repayment schedule to its supervisory authority. (Article 6)
b. In place of reducing or halting subsidies to governments which disobey regulations mandating the repayment of debt principal, the central government will reduce or delay allocations to such governments from the Tax Redistribution Fund. (Article 9)
3. Full disclosure of debt information
Central and local governments must all disclose their public debt information within their final accounting of revenue and expenditure. The MOF must compile this information and display it publicly in official gazettes and government websites. (Article 10)
4. Debt principal repayment
The central government and special municipalities must allot at least five percent of each year's tax revenue to repaying debt principal. Besides that, each county, provincial municipality, county municipality and township must annually repay at least 1.6 percent of the previous year's outstanding debt. If local governments take out loans to repay the principal, those loans shall themselves be calculated as debt. (Article 12)
5. The date for the Public Debt Act amendments to come into force should be assigned by the Executive Yuan. The Executive Yuan may set separate effective dates for different parts of the amendment. (Article 13)