One of the biggest challenges facing Taiwanese finance minister Sheu Yu-jer last year was balancing public expectations of lower taxes with the risk of trade shocks, in particular those caused by heightened tensions between China and the US — its two biggest trading partners.
As a technology manufacturing powerhouse, Taiwan is heavily dependent on some of the biggest American technology companies, such as Apple and Google. As such, US President Donald Trump’s vow to bring manufacturing jobs back onshore has perhaps become the biggest risk to the tech-heavy economy.
Sheu has been extremely cautious about public spending against this backdrop. Perhaps too cautious. That's why he ranks only 7th out of 12 in our Finance Minister of the Year poll.
He has insisted he is open to negotiations on economic policies, but has pledged that tax income will remain the same in 2017. That has drawn scorn from his critics, who point out that the government has already collected excess taxes of over NT$100 billion ($3.2 billion) in each of the last three years.
Sheu has rejected suggestions by some politicians, including his predecessor Cheng Sheng-ford and former premier Sean Chen, to return some of the excess taxes to the public in the form of consumer vouchers. But the idea has merit.
Taiwan’s private spending has been undermined by over-taxation. The consumer confidence index fell by 2.87 percentage points in January, which was the biggest drop in four years.
Sheu has not been against lower taxes entirely. The finance ministry, mulling some tax reform, has proposed reducing the individual income tax to 40% from 45%. But this would be funded from a bump in business income tax to 20% from 17%. Unsurprisingly, business owners have blasted the idea.
Sheu can certainly not be criticised for failing to guard government revenues. But he may be sacrificing consumer and business confidence for fiscal probity. As the island enters a difficult era of heightened US-China tensions, Sheu may be proved right in this regard — but he will have to continue to weather criticism along the way.
He can point to some success. Taiwan’s GDP slowdown has bottomed from a post-crisis low of 0.75% in 2015 and has been rising steadily for three consecutive quarters in Sheu’s watch.
Manufacturing has also remained strong, with the purchasing managers index staying over the 50-point threshold for 10 straight months through December, according to Chung-Hua Institution for Economic Research, a top government-funded think tank.
We are releasing our Finance Minister of the Year rankings day by day. Tomorrow: A steady pair of hands with a staggering work ethic.