Most Asia-Pacific finance ministers failed to capitalise on the global economic upswing to instigate meaningful structural reform in 2017 ahead of an inevitable rise in interest rates.
Instead, finance ministers continued to luxuriate in record-low interest rates to maintain towering government debts and persistent budget deficits.
Refinancing past excesses will become more expensive as bond yields rise. As an indicator of the size of the problem, the Organisation for Economic Co-operation and Development (OECD) expects the sovereign debt of its members to swell to around $45 trillion in 2018, up from $25 trillion in 2008.
In view of that, FinanceAsia’s annual assessment of finance ministers in the region is going to make painful reading material for the majority of governments and should worry investors.
Our focus is on the region’s 12-largest economies and our purpose is to provide support to the most progressive ministers and to pressure those who could do better for their populaces.
First, a note on our methodology: a finance minister’s responsibilities and powers vary between countries but most can be compared on their custody of the government’s finances, contributions to fiscal policy, development of local capital markets, and regulation of financial institutions.
The greatest challenge is accounting for the varied degrees of independence that each finance minister has. Most finance ministers serve at the pleasure of their prime ministers, presidents, or emperor. Getting things done requires political deftness, mastery of policy, sway over the bureaucracy, and the will to fight for the public interest.
FinanceAsia reporters spoke to a variety of sources in each market to derive a score for a given minister and place the minister’s performance in the correct local context.
We penalised finance ministers when they, through their actions or speeches, detracted from the credibility and prestige of the institutions they represent.
Sadly, most of the ministers we reviewed looked worse over time, led by Taiwan’s – Sheu Yu-jer, take a bow.
But those men and women near the top of our list impressed our judges through their commitment to change. We will be releasing the results in reverse order, day by day, over the next few weeks ... starting with the man at the bottom of our list.
RANKED 12TH: SHEU YU-JER, TAIWAN
FinanceAsia pointed out last year that the biggest challenge facing the head of Taiwan’s finance ministry, Sheu Yu-jer, was balancing public expectations of lower taxes with the risk of trade shocks. One year on and it is clear that Sheu has been unable to tackle the challenge effectively – and has perhaps made things worse.
Underlining that is the fact Sheu has repeatedly been urged by various industry organisations in the last 12 months to step down from his post. In a public survey conducted in September last year, 44% of Taiwanese indicated they were disappointed with his performance as the island’s finance minister.
Taiwan's complex tax system has seen it collect excess taxes totalling nearly NT$600 billion ($20.5 billion) over the past four years. Since more than half of these tax revenues came from personal income tax, it has needlessly cranked up the pressure on the island’s citizenry, especially low-income Taiwanese.
That has compounded the tax regime’s bias towards businesses over individuals, since the individual income tax rate of 45% is much higher than the corporate tax rate at 17%. As a result, white collar workers have not reaped the benefits of a slightly growing economy as their average real wage in 2016 – $15,327 per annum – was even lower than the 2000 level, according to the Directorate-General of Budget, Accounting and Statistics.
The heavy tax burden has discouraged private consumption, offsetting the economic gains made as global trade, and by extension Taiwanese exports, has recovered. As a result, Taiwan’s GDP growth in 2017 was 2.84%, compared with developed Asian rivals South Korea at 3.1% and Singapore at 3.5%.
There have been repeated calls for excess tax revenues to be rebated and for public welfare spending to rise since Sheu took office in 2016. In a comparable case the Singapore government announced a one-off payment of up to S$300 ($227) to every Singaporean this year after recording a whopping S$9.6 billion budget surplus in the last fiscal year.
But Sheu has so far stood still against these calls, extending the extremely cautious fiscal approach of his predecessor Cheng Sheng-ford, despite a relatively stable market backdrop and a gradual pick-up in the domestic economy.
Under his stewardship, the operating environment in Taiwan has also become less business friendly. Taiwan’s complex corporate tax system and the country’s highly bureaucratic government have discouraged investment by foreign companies. In his latest budget, Sheu made life yet more difficult for them by increasing the corporate tax rate to 20% from 17% and the withholding tax on dividends to 21% from 20%.
"The proposed changes will increase the overall income tax costs of doing business in Taiwan,” Deloitte said, after Taipei announced details of the tax reform last year.
Still, Sheu should be given some credit for pushing forward an individual income tax reduction from 45% to 40%, which is awaiting approval from lawmakers and could come into effect in the next fiscal year.
The government has also proposed raising the cap on standard individual income tax deduction by 33% to NT$120,000 in the upcoming fiscal year, while special tax deduction for certain low-income groups will be raised to NT$200,000 from NT$128,000. The move is expected to benefit as many as 5.4 million Taiwanese, or about 23% of the island's population.
But compared with the bigger woes, the sweetener may be too little, too late.
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