Since taking the island’s top financial role in July last year, Su Jain-Rong has largely followed his predecessor’s cautious approach in managing its public finances. If anything, he has become even more cautious.
One of the few achievements of former finance minister Sheu Yu-Jer, who moved to chair the Taiwan Futures Exchange after stepping down from his government role, was to reduce the individual income tax rate from 45% to 40%. Sheu has also proposed to add new categories of tax deduction to relieve the financial stresses on lower-income groups.
Just two months after assuming office, however, Su made a highly controversial move to suspend the addition of new tax-deductible categories such as student loans and elderly care expenses. By doing so, the former deputy finance minister has effectively taken away some of the sweeteners offered by his ex-boss. This is a key reason why Su ranks so lowly in FinanceAsia's annual ranking of finance ministers, just above Japan's Taro Aso.
Su explained that the move was necessary to maintain the government’s tax revenues and meet the growing cost of caring for an ageing society. He noted that the government is experiencing some financial difficulties and that his priority is to ensure its fiscal health.
And yet, the finance ministry has approved other tax-deductible expenses related to clothing maintenance, training and occupational tools, which tend to benefit Taiwanese citizens with an annual income above NT$2.25 million ($73,182), thereby going against government pledges to create a fair tax system and improve wealth distribution.
At the business level, Su’s cautious approach is hampering Taiwan’s desire to transform from a manufacturing powerhouse into an innovative economy. He is opposed to proposals that would grant tax concessions for staff development and increase them for R&D.
This at a time when economic activity on the island is muted, with the government in February trimming its 2019 GDP growth forecast to 2.27% and its 2019 export growth forecast to just 0.19%.
To be sure, many government officials support Su’s ‘prudent’ approach to utilise government resources as Taiwan continues to face uncertainties amid heightened US-China tensions. And it may be too early to make a judgement on a finance minister who has only been in position for nine months.
Still, based on what’s been seen to date, Taiwan is unlikely to solve some of its long-standing problems such as uneven income distribution and lack of business innovation in the years to come.