Finance Minister of the Year 2015

Finance Minister of the Year, Global and Asia-Pacific

Chang Sheng-ford, Taiwan

Taiwan’s finance minister, Chang Sheng-ford, has had a challenging 12 months. He has been pushing for tricky real estate and income tax reforms in the name of wealth redistribution while handling the delicate Cross-Strait Service Trade Agreement (CSSTA) negotiations amid social discontent. 

Taiwan also started taxing non-residential real estate that has been held for two years or less in 2011. Mr Chang wants to start taxing the value of houses and land together to better calculate capital gains, as well as calculating property value based on actual transaction prices and costs rather than assessments. This draft should be proposed in February 2015. 

Those owning only one house (72% of people in Taiwan) that is valued at T$20m ($638,500) or lower (91% of the 72%) will be exempt. Income tax for Taiwanese in the richest income bracket – Feedback Tax – has also increased by 5 percentage points to 45%. Dividend recipients – who are typically in Taiwan’s highest income brackets – can now use only 50%, instead of 100%, of tax paid by a company as credit against withholding tax on dividends. “We appreciate high-income individuals’ contribution. Most of them are happy to pay higher taxes, beyond our expectations,” says Mr Chang.

Steadying the economy is also a priority for Mr Chang. “We have become aware, especially after the EU sovereign debt crisis, that sound financials are key for economic sustainability,” he says. Taiwan is set to keep public debt below 38.6% of gross domestic product and leave 2% for additional contingencies. 

Meanwhile, the government aims to increase revenue by improving state-owned enterprises’ (SOEs) efficiency and privatising those not meeting policy goals.

In infrastructure, Taiwan has used public-private partnerships (PPPs) particularly well. Since starting in 2000, the ministry has contracted more than 1100 such projects, invested $32bn, reduced expenditure by about $28bn, raised revenues by $20bn and created 170,000 jobs. Setting firm, clear PPP rules and sharing risks and responsibility effectively between public and private investors have been key to Taiwan’s success. 

 “If a project's value for money is positive, it is better to rely on the private sector. For long-term financing the return ratio should not be too high or too low. It is not easy to do this job properly,” says Mr Chang.

Taiwan will be a key player in the Asia-Pacific Economic Cooperation’s proposed PPP centre. It is also working with Vietnam, which might soon contract Taiwanese private companies for infrastructure projects.

Mr Chang is also responsible for negotiating strands of the CSSTA. And while the agreement is being met with some opposition in Taiwan due to the fact that it would mean closer ties with mainland China, it could also benefit Taiwan’s economy greatly. “Taiwan is a small, open economy. Exports account for about 70% of gross national product. About 25% of exports go to mainland China so you can tell the importance of this bilateral trade,” says Mr Chang.

He has successfully negotiated the avoidance of double taxation in traded goods with China. The agreement may be signed in 2015, as long as it clears the Taiwanese law-makers. “The challenge is in the legislative department,” says the minister.

Finance Minister of the Year, Europe

Mateusz Szczurek, Poland

Its economy may be the poster child for the central and eastern Europe region – but western European countries could also learn a lot from Poland’s success. Some 25 years since the end of the Cold War, Poland is the fastest growing country in Europe, with gross domestic product (GDP) annual growth rates of more than 3% – Germany recorded only 1.2% growth in August 2014 against an average in the eurozone of 0.8%.

That does not mean that Mateusz Szczurek has an easy job, however. He took the helm at the Polish finance ministry in November 2013, just after the government admitted that its deficit would again fall short of the recommendations of the Ecofin Council (the economic and finance ministers of the EU). 

Under Mr Szcurzek’s leadership, Poland’s nominal deficit is expected to decrease from 4% of GDP in 2013 to 3.3% in 2014 – this would be 0.6 percentage points below the Ecofin’s recommendation. According to October’s estimates, 2015’s recommendation of 2.8% of GDP should also be undercut.

One of Mr Szczurek’s reform programmes contributing to these improvements focuses on higher efficiency within the country’s tax administration. 

“We have set up a special service to combat tax fraud,” says Mr Szczurek, “but the more challenging task is making sure paying taxes for normal individuals is as painless as possible. This requires a change in attitude and education but also a constant fight for more efficiency in the tax administration process. Looking at the budget numbers so far, we don’t just see higher-than-expected growth but also better tax collection than in 2013 and 2012 and a decline in the estimated VAT gap.”

Mr Szczurek has also raised Poland’s profile within Europe’s financial community. The minister was at the forefront of developing the EU investment initiative, which is part of the Juncker Commission’s plan to encourage investment into the EU.

“Right from the beginning we have been very active in the workings of the investment task force,” he says. “We contributed 250 projects to the pipeline, mostly in the sphere of transport and energy but also digital economy, environment and social infrastructure – all of that worth about Ä132.8bn. I have hope that this could be an important element of getting Europe out of its stagnation.”

Finance Minister of the Year, Americas

Mauricio Cardenas, Colombia

Colombia has for some time been attracting recognition for its economic path and development model – it has indeed become a symbol of a new Latin America, which prefers pro-business policies to populist rhetoric. 

As with other countries in the region, however, Colombia continues to be afflicted by inequality. Furthermore, as a shakier international environment takes a toll on the country, Colombia’s ministry of finance is keen to make sure that its investment programmes continue and macroeconomic indicators improve. This has resulted, among other measures, in the extension of two tax rules that would have expired in 2014. 

The move understandably ruffled feathers in the private sector, with critics claiming it would hamper growth.The Banker’s judges, however, see the benefits of such measures, which will go a long way to ensuring that Colombia’s growth is sustainable and its society is more equal. Finance minister Mauricio Cardenas has been impressive in seeing these measures through.

 “The tax reform extends two taxes that were going to expire in 2014: a wealth tax and a financial transactions tax,” says Mr Cardenas. “Both of these taxes were introduced over a decade ago, and have not been an obstacle to Colombia’s rapid growth. [In 2013] we had a rate of investment as a percentage of gross domestic product of just under 30%, the highest in the region and one of the highest in the world.” 

Thanks to an extensive dialogue with the private sector, it was agreed that the tax on corporations would remain active until 2018. The wealth tax on individuals with a net worth higher than $500,000 will be maintained in its current form as a progressive measure to reduce inequality. 

“This tax reform will raise the revenue necessary to comply with our fiscal rule, which stipulates that the deficit will go down from 2.3% in 2014 to 1.9% in 2018, and to maintain public investment in infrastructure and social programmes,” says Mr Cardenas. 

“Our main challenge last year was to maintain Colombia’s economic growth in an uncertain international environment, and I would say we have been successful. The International Monetary Fund projects Colombia’s growth in 2014 to be 4.8% compared with 1.3% for Latin America as a region. Despite lower commodity prices, we will continue to grow robustly thanks to strong internal demand from a growing middle class and public investment in sectors such as housing and infrastructure.” 

Finance minister of the Year, Middle East

Ibrahim Abdulaziz Al-Assaf, Saudi Arabia

Saudi Arabia’s ambitious plans for economic diversification and private sector development are starting to bear fruit. As the authorities prioritise infrastructure development, small and medium-sized enterprise financing and health and education initiatives, the country’s growth trajectory is starting to achieve greater balance. 

The non-oil sector’s contribution to its gross domestic product (GDP) now stands at 53%, up from 44% in 2008. Moreover, as global energy prices remain depressed, the country’s low government debt, at 2.7% of GDP, and massive foreign exchange reserves of more than $700bn, position it favourably to sustain any longer term price challenge. 

Ibrahim Abdulaziz al Assaf, the country’s long-serving finance minister, has been a driving force behind much of this accumulated strength. Though economic growth has been slowing of late, Saudi Arabia remains one of the strongest performing markets in the G20. Real GDP growth hit 3.8% in 2013, down from 5.8% recorded in 2012, according to data from the International Monetary Fund (IMF). This was in part due to a reduction in oil output. Yet, the non-oil private sector remained buoyant with growth sitting at 6% for the year. Meanwhile, the IMF expects economic growth in Saudi Arabia to sit between 4% and 5% for 2014 and 2015, respectively. 

Under the 2014 budget, spending growth in the country was substantially reduced, rising just 4%, way below the 20% increase seen in 2013. Much of this expenditure is focused on social development, including increases to health and education. Yet, about $17.3bn was devoted to transport infrastructure, including the development of roads, rail and port facilities, among others. These projects are helping to stimulate private sector development and employment, with the unemployment rate of Saudi nationals falling from 12.5% to 11.5% in the nine months to September 2014. 

Nevertheless, the country’s outlook is not without its challenges. Government spending, lower oil prices and the high level of foreign aid post-Arab Spring have the potential to push the country into a budget deficit in 2015. 

“Over the medium term, Saudi Arabia aims to maintain a sustainable economic growth path through deepening and accelerating the pace of economic diversification, expanding the absorptive capacity, increasing the contribution of the private sector and improving its productivity, and reducing unemployment among Saudi nationals by creating suitable and sufficient job opportunities,” says Mr Al Assaf.

Finance Minister of the Year, Africa

Hany Kadry Dimian, Egypt

Though they would like to, not many finance ministers leave much of a mark on their national economies. Finance minister Hany Kadry Dimian, however, has given hope to Egypt’s punch-drunk economy with a series of bold and courageous actions.

While Mr Dimian has not been long in the job, he is no stranger to what it entails. For most of his 24-year career as a civil servant, he has been closely involved with economic decision making, becoming Egypt’s deputy minister of finance in 2007, and first deputy minister in 2012. He was appointed minister of finance in February 2014.

He inherited an economy battered by the three years of upheaval that followed the toppling of president Hosni Mubarak. Gross domestic product growth, which was 5.1% in 2010, had fallen to 2.1% by 2013. Foreign currency reserves had halved and the Egyptian Exchange stock market index fell by nearly 50% at its lowest point.

Mr Dimian promised to “get the wheels moving again”, and to re-establish confidence with comprehensive structural reforms. These included the politically hazardous step of cutting Egypt’s massive energy subsidies, estimated by the International Monetary Fund (IMF) to be three times the country’s spending on education and seven times the health budget.

Despite the risk of public protests, Mr Dimian pressed on, slicing nearly $7bn off the previous year’s $20.8bn subsidy bill. He also raised income tax on top incomes, introduced property and capital gains taxes and promised VAT from 2015. The latest budget deficit has been reduced from 13% to 10%.

The positive effects are already beginning to show. After an IMF delegation visited Egypt towards the end of 2014, it said that the economy was starting to recover and predicted that growth would rise to 3.8% in the current fiscal year. 

Investors have returned to the stock market. The EGX 30, which was at 7436 at the start of February 2014, touched a high of 9811 at the end of September, well above pre-revolutionary levels. With the rate of inflation slowing and export orders increasing, business confidence, as measured by the HSBC Egypt Purchasing Managers Index, is on the increase. According to Mr Dimian, the government is now targeting a 4% to 5.8% growth rate over the next three years.