Pressured by the conservative opposition alliance of the former ruling Kuomintang and People First Party, President Chen Shui-bian decided on May 31 to delegate most domestic policy, giving power to Premier Su Tseng-chang as well as leaving the affairs of the governing Democratic Progressive Party in the hands of its chairman Yu Shyi-kun. Mr Su made the first major use of the president’s authorisation on June 29 with a surprise decision to shunt finance minister Joseph Lyu (who had just helped to defend the government’s control over Mega Holdings) into a post of minister without portfolio, and appointing Ho Chih-chin, a National Taiwan University economist and taxation and fiscal policy specialist, to head the ministry of finance (MoF).
In his first meeting with reporters on July 4, Mr Ho, who ended 15 years of service with the US Justice and Treasury Departments with service as a senior economist for the Internal Revenue Service, adopted a cautious stance on private sector calls for abolition of, or sharp reduction in, inheritance and gift taxes.
In the controversial field of financial reform, Mr Ho stated: “We engage in very cautious evaluation and planning regarding the matters of public-stock financial holding companies.”
He promised to “establish a fair, just and open transparent mechanism” to handle public stock investments in financial firms and “based on the principles of respecting the market... upholding the public interest”.
Mr Ho also said that the MoF would press forward with the drafting and promotion of legislative passage for several laws related to the national treasury and management of public assets. These include revisions of the public debt law, the law on the division of fiscal expenditures and revenues, and the public treasury law to bolster the management capability and effectiveness of the national treasury and promote fiscal reform at all levels of government.
Mr Ho was involved as MoF adviser in the drafting of plans and legal revisions for the new alternative minimum tax system, promoted under former finance minister Lin Chuan, which took effect on January 1. Now he aims to ensure, as the new law says, that companies and wealthy individuals pay some taxes at the very least: firms must pay a minimum of 10% on income of more than NT$2m ($61,402) and there is a minimum 20% levy on individuals with income of more than NT$8m.
National Taiwan University professor of finance Lin Shang-kai told The Banker that Mr Ho’s appointment reflects Mr Su’s desire to compensate for the premier’s lack of expertise in fiscal and tax policy. He says that Mr Ho is “very professional in the field of tax policy and has a deep sense of mission”.
Policy versus politics
However, Mr Lin, a former director-general of the Kaohsiung City Bureau of Finance, warns that whether Mr Ho will be successful in promoting further tax and fiscal reforms will depend on his “political sensitivity” and “capability to promote and defend his policies” based on civic justice, and not turning reform proposals into partisan issues.
Mr Su also named three new members of the financial supervisory committee (FSC), but did not announce a decision about the future of FSC chairman Kung Jaw-sheng, who was suspended from his post on May 13.
On May 12, Mr Kung was the subject of a day-long interrogation by Taipei district prosecutors and was released on NT$500,000 bail in an investigation into alleged breach of trust when he served as chairman of the state-owned Taiwan Sugar Corporation, before he was appointed to the FSC in July 2004.
Under investigation
Mr Kung, who was appointed to a fixed four-year term effective from July 1, 2004, under the FSC organic law, denies the charges and refuses to formally leave his post, making it virtually impossible for the premier to do more than appointing FSC vice-chairman Lu Tung-ying acting chief of the body.
In an emotional press conference in May, Mr Kung said he “respected the Cabinet’s decision” and acknowledged that it was “impossible for me to return to the post”. He did not state whether he would resign, saying only that he took office as FSC chairman “with a clean reputation and I hope to leave with one”.
Mr Kung insisted that “this situation” resulted because he “got in the way of certain interest groups” during the course of his role as FSC chairman. Since then, he has remained silent.
Mr Lu, a former chairman of the Securities and Exchange Commission, is still acting chief of the FSC on a provisional basis.
In late July, the Cabinet will have convened a national “Conference on Taiwan’s Economic Sustainable Development”, which aims to form consensus among the leading political parties, business groups and civic interests on “long-term, structural and controversial” problems facing Taiwan’s development.
Although the agenda includes the construction of a comprehensive social security system and human resource policy, enhancing industrial competitiveness, fiscal and financial reform and government efficiency, the focus of media and business attention was firmly fixed on the topic of globalisation and Taiwan’s economy and trade relations with the People’s Republic of China.
A central part of the process is also a discussion on measures to enhance the transparency of the merger and acquisition process, bolster the soundness of the financial system, enhance the effectiveness of the management of public stock holdings, improve Taiwan’s competitiveness as a regional asset and fund raising centre and, possibly, liberalise or rationalise financial links with China.
