Transcript Taiwan`s Current Economic Situation

Contemporary Issues of Public Finance
and Population in Taiwan
Vance Kuang-Ta Lo
Associate Professor
Department of Public Finance
National Chengchi University
March 4, 2016
1
Outlines

Part I:





Part II:



Global Economic Situation and Outlook
Taiwan’s Current Economic Situation
Prospects for 2016
Taiwan’s Current Fiscal Challenges
Demographic Pattern, Trend, and Projection
Problems and Challenges
Part III:


The Sound Finance Program
Tax Reform
2
Part I
3
Global Economic Situation and Outlook
This part was prepared by the Department of Economic Development of the National
Development Council (NDC). Quarterly updates can be found on the NDC’s website at
http://www.ndc.gov.tw/encontent/m1.aspx?sNo=0001444.
4
Global Growth Faces Headwinds

Global economic growth disappoints and faces rising headwinds at
the close of 2015 that may well persist into the next year.


Advanced Economies recovers at a modest pace.
The weakness in emerging markets, especially in Mainland China, drags
down the global economy.
World Economic Outlook Projection
OECD
2015
World
2016
Unit：％
GI
2015
EIU
2016
2015
2016
2.9（3.0）3.3（3.6） 2.6（2.6） 2.9（2.9） 2.4（2.4）2.6（2.7）
United States
2.4（2.4）2.5（2.6） 2.5（2.4） 2.7（2.9）2.5（2.5）2.4（2.4）
Eurozone
1.5（1.6）1.5（1.9） 1.5（1.5） 1.7（1.7）1.6（1.5）1.7（1.7）
Japan
0.6（0.6）1.0（1.2） 0.7（0.5） 1.0（1.0）0.7（1.0） 1.2（1.7）
Mainland China
6.8（6.7）6.5（6.5） 6.9（6.8） 6.3（6.3）6.9（6.9）6.5（6.4）
Note: The values in parentheses represent the previous forecast. ( OECD : Sep. 2015, EIU & GI : Nov. 2015 )
Source:1. OECD, Economic Outlook, Nov. 9, 2015
2. IHS Global Insight Inc., World Overview, Dec. 15, 2015
3. The Economist Intelligence Unit, Global Forecasting Service, Dec. 11, 2015
5
US Economic Fundamentals Remain Solid


US real GDP increased at an annual rate of 2.0% in the third quarter of 2015,
mainly because private consumption was strong and fixed investment grew.
Since the unemployment rate was down and CPI had rebounded, the Federal
Reserve raised interest rates on December 16, 2015.
US unemployment rate
US real GDP growth rate
%
(SAAR)
%
6
4.6
4.3
(seasonally adjusted)
3.9
4
2.1
2
2.0
0.6
Source：US Department of Labor, Dec. 4, 2015
US one-month percent change in CPI
0
(seasonally adjusted)
-2
-0.9
Q1
2014
Q2
Q3
Q4
Q1
Q2
Q3
2015
Source：U.S. Department of Commerce, Dec.
22, 2015
Source：US Department of Labor, Dec. 15, 2015
6
Euro Zone Economic Growth Slows


Euro Zone real GDP growth rate slowed to 0.3% in the third quarter of 2015
(down from 0.4% in the second quarter), helped by a stronger performance by
Spain (+0.8%).
The European Central Bank（ECB）will continue its quantitative easing
through September 2016 and will delay interest-rate hikes until late 2017. EIU
forecasts Euro Zone GDP growth at 1.5% in 2015, but risks are to the downside.
Euro Zone economic growth by sector
(% change)
Euro Zone real GDP growth rate (q/q)
%
0.5
0.5
0.4
0.4
0.3
0.3
0.1
2014
2015
2016
2017
Real GDP
0.9
1.5
1.7
1.8
Private consumption
0.8
1.7
1.7
1.7
Fixed investments
1.4
2.2
2.1
2.4
Exports
4.1
4.9
3.6
3.7
4.5
5.3
3.9
3.8
Imports
0
Q2
Q3
Q4
2014
Source: Eurostat, Nov. 2015
Q1
Q2
2015
Q3
Source：IHS Global Insight Inc., World Overview, Dec. 2015
7
Japan’s Economy Grow Slightly



The Japanese real GDP growth increased 0.3% in the third quarter (-0.1% in the
second quarter), mainly because equipment investment grew significantly.
Growth will resume in late 2015, led by an upturn in consumer spending and
continued growth in residential construction.
EIU forecasts that Japan will grow by 1.0% in 2015, increasing to 1.7% in 2016.
Japanese economic growth by sector
(% change)
Japanese real GDP growth rate
%
1.5
1.2
1.1
0.5
0.3
2014
2015
2016
2017
Real GDP
-0.1
0.7
1.0
0.5
Private consumption
-1.0
-0.8
1.2
-0.2
Fixed investments
1.1
0.3
2.6
2.7
Exports
8.3
3.0
2.4
4.1
7.2
0.8
3.2
3.8
0
-0.1
-0.7
-1.5
-1.9
Imports
-3
Q1
Q2
Q3
Q4
2014
Source: The Cabinet Office, Dec. 2015
Q1
Q2
2015
Q3
Source：IHS Global Insight Inc., World Overview, Dec. 2015
8
Mainland China’s Economy Continues to Decelerate


Mainland China faces overcapacity and industrial structure adjustment to the
economic "new normal”. Growth in industrial output, fixed investments, retail sales,
and total value of imports and exports in the first to third quarter all slowed, this
year's economic growth forecast is less than 7%, a record low since 1990.
The Service sector for the first 3 quarters grew by 8.4%, while its share of nominal
GDP increased to 51.4%, the final consumption expenditure contribution rate is was
58.4%, showing consumption has gradually become the main driver of China's
economic growth momentum.
Mainland China’s real GDP growth rate
7.5
%
7.4
7.3
7.2
7.2
7.0
6.9
6.5
Q2
2014
Q3
Q4
Q1
Economic Indicators
2014
2015 Jan.-Nov
Industrial Output
8.3
6.1
Investment in Fixed Assets
15.7
10.2
Total Retail sales of
Consumer Goods
12.0
10.6
Total Value of Imports and
Exports
3.4
-8.5
7.0
7.0
Q1
Growth rates of main economic indicators
(% change)
Q2
Q3
2015
Source：National Bureau of Statistics of the People’s Republic of China,
Oct 20, 2015
Source：National Bureau of Statistics of the People’s Republic of China
9
Taiwan’s Current Economic Situation
10
Economic Growth Slowed Further
In Q3 2015, real GDP grew at a rate of -0.63%, lower than the 0.10%
previously projected by the Directorate-General of Budget, Accounting and
Statistics (DGBAS). Due to the sluggish demand in global consumer electronic
products, and the crowding out effect from the expanded supply chain in
Mainland China, Taiwan’s commodity exports decreased.
The seasonally adjusted annual rate (SAAR) was -1.20%.


Real GDP Growth
%
y/y(%)
10
4.03
6.55
3.63
4.04
1.46
0
-5
5.13
3.66
3.18
SAAR (%)
6.73
6.08
5
forecast
2.51
1.47
4.15
3.31
0.57
4.26
0.80
0.91
-0.63
1.90
-1.20
-1.20
0.49
-4.50
-10
Q1
Q2
Q3
2013（2.20%）
Q4
Q1
Q2
Q3
2014（3.92%）
Note: : DGBAS also revised the national accounts for 2013 and 2014
Source: Directorate-General of Budget, Accounting and Statistics (DGBAS), Nov. 2015
Q4
Q1
Q2
Q3
2015（1.06%）
Q4
11
Foreign Trade Momentum Curbed


Total exports contracted by 3.01% year-over-year in Q3 2015, lower than the
-0.74% growth in Q2 2015, mainly due to the weak demand in global
consumer electronic products, coupled with the crowding out effect from the
expanded supply chain in Mainland China.
Imports fell by 2.24% from a year earlier, with the decrease in consumption
and exports.
The Growth Rate of Real Goods and Service Exports and Imports forecast
%
10
8
6
4
2
0
-2
-4
-6
export growth
Import growth
8.94
5.18
5.22
4.62
4.38
6.44
5.09
6.13
7.54
3.43
6.14
1.74
4.55
4.14
3.61
2.43
2.87
2.90
-2.24
-0.37
0.90
-0.74
-1.09
-3.01
Q1
Q2
2013
Source：DGBAS, Nov. 2015
Q3
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
Q4
2015
12
Major Trade Partners

Exports for the first 11 months of 2015 to the ASEAN-6, China (including
Hong Kong), Europe, and Japan declined by 14.3 %, 11.9%, 11.6% and 2.9%
respectively compared with the same period last year.
Changes in Two-Way Trade with Major Trading Partners (y/y%)
Total
21.1
2004
8.8
2005
12.9
2006
10.1
2007
3.6
2008
-20.3
2009
34.8
2010
12.3
2011
-2.3
2012
1.4
2013
2014
2.7
2015Jan.-Nov. -10.3
USA
8.3
1.3
11.2
-0.9
-4.0
-23.5
33.6
15.6
-9.3
-1.2
7.1
-1.2
Exports
Japan Europe China (incl. ASEAN Total
Hong Kong)
6*
11.1
9.4
7.9
-2.2
10.2
-17.4
24.2
1.2
4.2
1.2
3.5
-2.9
14.7
-0.8
10.5
9.7
4.6
-24.6
30.1
6.2
-7.8
-3.5
3.5
-11.6
28.8
12.2
14.8
12.6
33.0
13.8
13.8
16.7
-0.8
7.3
-15.9 -21.5
37.1 37.2
8.1
22.7
-4.4
9.8
2.2
3.9
2.8
1.2
-11.9 -14.3
Imports
USA Japan Middle China (incl. ASEAN
East Hong Kong) 6*
34.6
47.7 16.2
31.8 28.2 33.6
5.3
36.5
16.2 3.8
8.2 -2.8
0.5
30.1
20.1 10.4
11.0 7.1
11.7
11.9 1.7
8.2 17.0 -0.8
1.2
39.9
10.2 8.0
9.7 -0.7
-42.2
-22.3 -22.8
-27.5 -31.0 -22.1
39.4
47.1 45.6
44.1 39.8 43.3
0.5
14.7
20.5 13.4
12.0 1.5
20.2
-3.8 -3.9
-3.9 -8.4 -8.9
-0.2 6.8
-9.2
0.6
1.6
3.3
1.5
8.8
-3.4
-7.5
12.4 3.4
-16.5 -3.2 -7.2
-41.4
-8.3 -16.1
*ASEAN 6 refers to Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam
Source：Ministry of Finance, Dec. 2015
13
Domestic Consumption Growth Slowed

Private consumption grew 0.5% from a year earlier in Q3 2015, lower than the
3.55% growth in Q2 2015, while the stock market’s trading value and tourists
decreased.
forecast
Private Consumption Growth
y/y, %
5
4
3
2
1
0
Q1
Q2
Q3
2013 (2.34%)
Source: DGBAS, Nov. 2015
Q4
Q1
Q2
Q3
2014 (3.33%)
Q4
Q1
Q2
Q3
Q4
2015 (3.05%)
14
Domestic Investment Up Slightly

Gross fixed capital formation was up by 3.1% year-over-year in Q3 2015, with
private enterprise gross fixed capital formation increasing by 5.11%, higher
than the -0.64% of Q2. A rise in semiconductor and train locomotive
investment was partially offset by a decrease in construction engineering
investment. 3 0
Private fixed i nvestment
forecast
Public enterprise fixed investment
y/y, %
G o v e r n m e n t fixed i nvestment
20
Gross fixed capital formation
10
0
-10
-20
-30
-40
Q1
Q2
Q3
2013
Total
Private enterprises
Government
Public enterprises
Source: DGBAS, Nov. 2015
5.30
7.09
-2.79
2.99
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2014
2015
1.76
3.17
-7.36
5.31
0.93
2.02
-2.53
-6.06
Q4
15
Employment Remains Steady


The unemployment rate stood at 3.91% in November 2015, up by 0.01
percentage points over the previous month. The seasonally adjusted
unemployment rate increased by 0.05 percentage points to 3.84%.
The labor force participation rate increased by 0.01 percentage points over the
previous month to 58.74%, up 0.08 percentage points compared with that of a
year earlier.
%
%
59.0
6.0
58.74
58.5
5.5
58.0
5.0
57.5
4.5
3.91
57.0
4.0
Labor force participation rate (left scale)
56.5
3.5
Unemployment rate (right scale)
3.0
56.0
1
3
7
11
5
9
1
7
11
3
2012
2013
2014
2015
9
1
5
11
3
7
1
5
9
3
7
11
5
9
16
Prices Stable


Taiwan’s CPI in November 2015 moved up 0.53% compared with the same
month last year, mainly due to the 30.5% increase in the vegetables index. In
addition, the lowering of gas and electricity prices led to a decline in prices of
water, electricity, and gas of 13.65%. Core prices (excluding fruit, vegetable
and energy prices) increased by 0.86%.
The WPI decreased by 7.75% year-over-year, due to the decline in indexes for
petroleum and natural gas.
y/y, %
4
0.53
0
-4
-7.75
CPI
WPI
-8
-12
1
3
5
7
9
11
1
2012
Source: DGBAS, Dec. 2015
3
5
2013
7
9
11
1
3
5
2014
7
9
11
1
3
5
7
9
11
2015
17
Stock Index Continues to Fall

The average closing price of TAIEX was 8,502 in November 2015, down by
0.6% from the previous month, while it decreased by 5.7% compared with the
same month the previous year.
Stock Index
Source：Taiwan Stock Exchange, Nov. 2015
18
Prospects for 2016
19
Economy Gradually Improve in 2016
According to DGBAS’s latest estimation in November, GDP growth rate in
2015 is forecast to be 1.06%, down 0.5 percentage points over August’s
forecast, mainly due to weak domestic demand and a slump in exports.
The world economy is anticipated to perform better in 2016, which will sustain
Taiwan's export growth. Moreover, domestic public spending will increase.
Real GDP is forecast to grow by 2.32% in 2016.


Economic Outlook
Contributions to
GDP growth rate
(percentage points)
GDP growth rate (%)
GDP growth rate
6.00
6
3.92
3.80
4.00
2.06
4
2.20
2.32
1.06
2.00
2
0.00
0
-2.00
-2
Contributions of domestic demand
-4.00
year
Contributions of net foreign demand
-4
2011
2012
Source: DGBAS, Nov. 2015
2013
2014
2015 f
2016 f
20
Exports Fall in 2015 But Expected to Revive in 2016
Taiwan's exports plummeted due to the sluggish demand in global consumer

electronic products, the crowding out effects from the expanded supply chain in
Mainland China, and the falling price of crude oil. Real goods and services exports
are projected to grow by 0.15% in 2015.
With the gradual recovery of the global economy, real goods and services exports

are projected to rise by 4.74% in 2016.
The Growth Rate of Nominal Goods Exports
%
10
5
%
(y/y)
2015 growth rate:
-10.16%
5.33
6.77
6
0.10
0
-5
Goods and
services exports
3.50
4
-9.83
-15
Q1(r)
2
-4.19
-4.18
-10
quarter
8
The Growth Rate of Real
Goods and Service Exports and Imports
-12.23
-13.87
Q2(r) Q3(p) Q4(f) Q1(f)
2015
Source: DGBAS, Nov. 2015
2016 growth rate:
1.97%
Q2(f)
Q3(f)
2016
Q4(f)
0.41
5.91
4.74
5.65
0.86
3.4
0
-2
forecast
4.25
0.15
-1.78
-4
year 2012
Goods and services imports
2013
2014
2015 f
2016 f
21
Private Consumption to Remain Stable


In the first half of 2015, consumer spending rose solidly because of increasing
employment and rising wages, plus increasing numbers of people traveling abroad.
However, in 2015 Q3, the weak economic data weighed on consumer confidence.
In 2015 Q4, the government launched a consumption-boosting program that will
stimulate domestic consumption. Overall, private consumption is projected to rise
by 2.55% in 2015.
In 2016, private consumption is expected to increase only by 1.76%, owning to the
end of the consumption-boosting program and the fallout from a disappointing
economy in 2015.
The Growth Rate of Private Consumption
(y/y)
2015 growth rate:
%
2.55%
2016 growth rate:
1.76%
quarter
Source: DGBAS, Nov. 2015
22
Domestic Investment to Grow Steadily
In the first half of 2015, private fixed investment showed only slight growth. In
2015 Q3, semiconductor manufacturers continued to invest in advanced
technologies, and increased investment in public transportation will help boost
private investment. However, tepid construction investment affected by the
slowdown in the housing market will restrain private investment. Private fixed
investment is projected to increase by 2.02% and 0.97% in 2015 and 2016,
respectively.
Government fixed investment is expected to decrease by 2.53% in 2015, but to rise
by 3.60% in 2016, mainly due to the government’s expansionary fiscal policy.


%
The Growth Rate of Private Investment
(y/y)
6
5.11
5
4
2.71
3
2.26
2 1.33
0.66 0.73
1
0
-0.04
-0.64
quarter
1 Q1(r) Q2(r) Q3(p) Q4(f) Q1(f) Q2(f) Q3(f) Q4(f)
2015
Source: DGBAS, Nov. 2015
2016
The Growth Rate of Fixed Investment
%
10
7.09
Private
sector
.0
0
-0.35
2.99
0.00
-7.42
5.31
forecast
2.02
3.17
-2.53
3.60
3.60
0.97
-7.36
-2.79
-6.06
10.00
-10.95
Government
Public enterprises
20.00
year
2012
2013
2014
2015 f
2016 f
23
Forecasts for Taiwan’s Economy
Real GDP
（yoy,%）
Consumer Price Index
（yoy, %）
2015 f
2016 f
2015 f
2016 f
DGBAS (2015.11)
1.06 [1.56]
2.32 [2.70]
-0.31 [-0.19]
0.84 [0.74]
CIER (2015.12)
0.93 [0.90]
2.24 [2.27]
-0.31 [-0.46]
0.81 [1.03]
TRI (2015.12)
0.98 [3.35]
2.06
-0.33 [0.29]
0.54
Yuanta-Polaris (2015.12)
0.89 [1.15]
1.93 [2.30]
-0.28 [-0.21]
0.82 [0.82]
TIER (2015.11)
0.83 [3.11]
1.84
-0.43 [0.03]
1.14
IEAS (2015.7)
3.24 [3.38]
-
-0.33 [0.72]
-
Global Insight (2015.12)
1.0 [0.9]
2.0 [2.0]
-0.3 [-0.3]
1.0 [1.0]
ADB (2015.12)
1.0 [1.6]
2.4 [2.6]
-0.2 [-0.5]
1.1 [0.5]
EIU (2015.12)
1.1 [1.1]
2.1 [2.1]
-0.2 [-0.2]
1.7 [1.7]
IMF (2015.10)
2.2 [3.8]
2.6 [4.1]
-0.1 [0.7]
1.0 [1.3]
DGBAS = Directorate-General of Budget, Accounting and Statistics, ROC (Taiwan) ; CIER = Chung-Hua Institution for Economic Research, Taipei ;
TRI = Taiwan Research Institute ; TIER = Taiwan Institute of Economic Research, Taipei ; Yuanta-Polaris = Yuanta-Polaris Research Institute ; IEAS =
Institute of Economics, Academia Sinica ; ADB = Asian Development Bank ; EIU = Economist Intelligence Unit ; IMF = International Monetary Fund.
[ ] indicates the value of previous forecasts
24
Remarks (1/2)

Due to continuing weak global demand, Taiwan’s exports have
seen double-digit year-on-year contractions in value in most
months of 2015.

However, domestic demand remains moderate to sustain an
economic growth momentum. According to DGBAS’s latest
estimation in November, Taiwan’s GDP growth is expected to
decrease by 0.63% in 2015 Q3, but to rise by 0.49% in 2015 Q4.
In 2015, real GDP is forecast to grow by 1.06%.
25
Remarks (2/2)

In 2016, Taiwan's GDP is projected to grow by 2.32% since the
world economy is anticipated to perform better in the future.

Nevertheless, the Mainland China economy shows a downward
pattern, and because emerging markets could face a liquidity
crisis, it means caution is still needed in the near future.
26
Taiwan’s Current Fiscal Challenges
27
Our Current Fiscal Situation


From 2008 to 2014, the annual expenditure is usually greater than
the annual revenue, and the budget fiscal deficit of 2014 was US$
7.1 billion.
If we take the repayment of debt into consideration, the total fiscal
deficit is US$ 9.2 billion, which should be balanced mainly by the
issuance of debt.
US$ billion
Debt Repayments
Difference between revenues and expenditures
75.0
66.4
60.0
30.0
Revenues
Expenditures
63.5
64.0
63.2
62.1
28.0
64.0
58.3
54.7
26.0
24.0
55.7
51.8
45.0
55.6
57.7
56.9
22.0
20.0
49.9
18.0
2.2
16.0
2.20
14.0
30.0
12.0
2.2
15.0
2.2
14.6
3.1
2.6
13.5
8.3
7.6
4.4
3.6
0.0
2008
10.0
2.1
2009
2010
2011
2012
2013
8.0
6.0
7.1
4.0
2.0
2014
0.0
Year
28


However, the outstanding debt in Taiwan has shown an upward
trend. The ratio of outstanding debt to the average nominal GDP for
the previous three fiscal years increased from 30.7% in 2008, 37.5%
in 2013, and 38.1% in 2014, which is approaching to the legal debt
ceiling of 40.6%.
Therefore, it is quite difficult to balance our fiscal deficit by the
issuance of debt. If the government does not adopt any reform
measure, we may face fiscal difficulty in few years.
29
Gradual Increase in Statutory Expenditure

The statutory expenditures have also shown an upward trend from
2008 to 2014. The overall figures also show that our expenditures
are quite rigid and inflexible.
US$ billion
%
70
60
57
60
57
37
39
30
20
64
65
100
90
50
40
60
65
65.2
39
42
68.9
69.9
44
44
45
80
68.8
69.9
69.5
64.5
70
60
10
0
50
2008
2009
2010
2011
General budget expenditure
2012
2013
2014 Year
Statutory expenditure
Ratio
30
Increase in Expenditures due to Change in
Major Policies

Moreover, the structure of the population is changing. For example, a
low fertility and an aging population are having an impact on related
policies. In addition, we are planning to implement the major policies
of “12-Year National Fundamental Education” and “Long-Term Care”
among others. And, thus, we expect that the related expenditures will
be on the increase.
Impact of a low
fertility and aging
population on major
policies
Increase in
related
expenditures
Plans to implement major
policies of “12-Year
National Fundamental
Education” and “LongTerm Care,” etc.
31
Revenue Structure and Tax Burden Ratio

As for our revenue structure, tax revenue composes the main part
of the revenues. The ratio of tax revenue to total revenues was
70.4﹪in 2013. However, our tax burden ratio was only 12.6% in
the same year. This means that there is still room for raising tax
revenue.
Revenue Structure
Tax Burden Ratio
%
US $ billion
50
45
40
35
30
25
20
15
10
5
0
General budget tax revenue
Tax burden ratio
41.43
42.68 42.38
40.11 40.74
13.9
35.05 36.08
15.0
14.5
14.0
13.5
12.9 12.8
12.6
13.0
12.5
12.3
12.0
12.0
11.5
11.0
2008 2009 2010 2011 2012 2013 2014 Year
32
Remarks (1/5)
We think there are three main challenges to Taiwan’s fiscal
account, which lead to concern over continued fiscal deficits and
rising government debt level.
(1) Sub-trend GDP growth
With
its high export dependency, Taiwan’s economic growth is
negatively affected since the onset of the global credit crisis in
2008.
Weakened consumption demand in the developed markets have
been negatively affecting Taiwan’s export sector and the overall
economy.
33
Remarks (2/5)

The growth slowdown has impacted the fiscal accounts in two
ways:

First, it has slowed the growth in fiscal revenue. Taiwan’s general
government net revenue growth has slowed to 0.8% per year from
2008 to now, compared to 3.8% per year from 2004 to 2007.

Second, it has expedited the growth in fiscal expenditure. Because
of the slowdown in growth, the government has to allocate more
spending on infrastructure projects to boost the economy. As a result,
net general government expenditure growth has accelerated to 3.5%
per year between 2008 and now, up from 0.9% per year between 2004
and 2007.
34
Remarks (3/5)
(2) Low tax burden

Taiwan’s tax revenue represented only about 12.2% of GDP in
2012, which is much lower than other countries.
35
Remarks (4/5)
(3) An aging population





We think an aging population is the most serious challenge to
Taiwan’s fiscal condition in the coming years.
According to the Council for Economic Planning and Development
(CEPD), Taiwan’s population is expected to rapidly age starting
from 2013 onwards.
The percentage of old-age population (defined as age 65 and
above) is expected to rise from 11.5% of the total population in
2013 to 14.6% in 2018, and continue rising in subsequent years.
At the same time, the working-age population (defined as age 15 to
64), is expected to shrink from 74% of total population in 2013 to
72.7% in 2018.
The old-age dependency ratio is hence expected to drop from
around 6.4 in 2013 to 4.9 in 2018, and continue deteriorating.
36
Remarks (5/5)




The aging of Taiwan’s population is structural, which makes it
very difficult to alter by the government over the medium term.
This should have serious implications on the government’s tax
revenue, and more importantly, on the government’s social security
and pension-related spending.
In 2011, social security and pension expenditure represented 5.5%
of GDP and 28.7% of the general government net expenditure.
The ratios are projected to rise further to over 7% of GDP and 33%
of government expenditure in 2018 as the population ages,
assuming no effective reform measures are introduced to avert the
trend.
37
Part II
38
Contemporary Issues of Population
in Taiwan
(Special thanks to Prof. Jr-Tsung Huang for sharing this PPT)
I.
Overview
 The
age composition of population has become a
major issue in countries.
 Based
on the definition from World Health
Organization (WHO),
the percentage
of elders over
65 years old
＞
7% : Aging
14%: Aged
20%: Super-Aged
Elderly Population
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Total, % of population, 2014
 Changes
in people structure toward aging will affect the
macroeconomic interior, especially the government
fiscal, and might have economic loss from a declining
working-age population.
 According
to the data, the total population in Taiwan
was last recorded at 23,492,074 people in 2015 from
15,927,167 in 1974, changing 47.4% during the last 51
years.
 Based
on medium-variant projected population, the
peak population of Taiwan will reach 23.5–23.6 million
during 2019–2026, representing an increase of
100,000–230,000 over 2014.
 By
2060, the population will have fallen to
approximately 16.9–19.5 million, approximately 72%–
83% of the population in 2014.
 However,
based on medium-variant projection,
negative population growth will occur in 2019 at the
earliest and in 2026 at the latest.
II. Significant Decline in Fertility
 Figure
3 presents a time trend of general fertility rate
(GFR, hereafter) and total fertility rate (TFR,
hereafter) of Taiwan during 1981-2014.
 TFR
has been lower than replacement level of 2.1
since 1985.
 In
1985, the TFR was 1.88. It was even lower than 1
in 2010, only 0.895.
 General
fertility rate
(GFR)
the number of births in a year
divided by the number of
women aged 15–44, times
1000. It focuses on the
potential mothers only, and
takes the age distribution into
account.
Let B
= Number of birth
Let W15-44 = Number of women of
reproductive ages
 Total
fertility rate
(TFR)
the total number of children a
woman would bear during her
lifetime if she were to experience
the prevailing age-specific fertility
rates of women. TFR equals the
sum for all age groups of 5 times
each ASFR rate.
Age Specific Fertility Rate (ASFR)
= (Number of births to women in age
group i / Number of women in age
group i) x 1000
Total Fertility Rate (TFR)
= (The sum of the ASFR x The
number of years in each age group) /
1000
 Interestingly,
the fluctuations of both fertility
rates shown in Figures 3 follow Taiwanese
people’s preference of some peculiarly Chinese
characteristics.
 For example, Dragon is most auspicious, but
Tiger is most stigmatized. Snake is also less
auspicious.
 Therefore, every Taiwanese parent is hoping to
have a Dragon baby, but not a Tiger baby.
Rat
Ox
Tiger
• Positive
aspects:
Intelligent,
Charming and
Confident
• Negative
Aspects:
Jealous,
Selfish,
Ruthless
• Positive
aspects:
Hardworking,
Loyal, Patient,
Good Hearted
• Negative
Aspects:
Critical, Petty
and Vain
• Positive
aspects:
Independent,
Productive and
Loyal
• Negative
Aspects:
Stubborn,
Anxious and
Moody
Rabbit
• Positive
aspects: Wellmannered,
caring and
sensible
• Negative
Aspects:
Insecure,
Pessimistic
and Sly
Dragon
• Positive
aspects:
Intelligent,
Charming and
Confident
• Negative
Aspects:
Jealous,
Selfish,
Ruthless
Snake
• Positive
aspects:
Hardworking,
Loyal, Patient,
Good Hearted
• Negative
Aspects:
Critical, Petty
and Vain
Horse
• Positive
aspects:
Independent,
Productive
and Loyal
• Negative
Aspects:
Stubborn,
Anxious and
Moody
Sheep
Monke
y
• Positive
aspects: Wellmannered,
caring and
sensible
• Negative
Aspects:
Insecure,
Pessimistic
and Sly
• Positive
aspects:
Intelligent,
Charming and
Confident
• Negative
Aspects:
Jealous,
Selfish,
Ruthless
Rooster
Dog
• Positive
aspects:
Hardworking,
Loyal, Patient,
Good Hearted
• Negative
Aspects:
Critical, Petty
and Vain
• Positive
aspects:
Independent,
Productive and
Loyal
• Negative
Aspects:
Stubborn,
Anxious and
Moody
Pig
• Positive
aspects: Wellmannered,
caring and
sensible
• Negative
Aspects:
Insecure,
Pessimistic
and Sly
 According
to DHRD (2014), it is shown in Figure 6
that after the curves of the crude birth rate and crude
death rate intersect in 2019, the natural population
increase will be zero and start to shift from naturally
increasing to naturally decreasing.
 More
seriously, the rate of natural population increase
(RNPI=CBR－CDR) is expected to be –13.3‰ in
2060.
 Late
marriage and childbearing are factors causing
such low fertility rate in Taiwan.
 Therefore,
during their peak period of fertility, most
women are still studying in college or university.
 The
average age for female to have their first
childbirth was 22.9 years in 1975, increased to 30.5
years in 2014.
 Another
factor causing low fertility rate is the
increase in female labor force participation.
 Figure
7 indicates that the female labor force
participation rate increased by 11.61% over the past
37 years, from 39.13% in 1978 to a historic high of
50.74% in 2015
 It
is thus roughly speaking that in Taiwan the birthrate
declined as more women joined the work force.
 Taiwanese
women exhaust themselves struggling on
several fronts: their jobs, household work and family
duties. With the burden of childrearing and family
care resting on their shoulders, Taiwanese women
face heavy physical and mental pressure.
%
80
75
70
65
60
55
50
45
40
35
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
All
Source: National Statistics, ROC, Taiwan.
Male
Female
FIGURE 7: Labor Force Participation Rate By Gender (1978-2015)
Year
III. The Coming Aging and Aged Era
 According
to Figure 8, the share of Aged 65 and above
has an upward trend during 1980 to 2060.


Taiwan has been considered as an aging country since 1993.
Taiwan is further forecast to become an aged society and
super-aged society in 2018 and 2025, respectively.
 As
pointed out by Hsueh and Wang (2008), the aging
rates will grow faster in Taiwan than in most of the
developed regions in the future.
 It
will take only 25 years for the aged portion of the
Taiwan population to rise from 7% to 14%, second only
to Japan (taking only 24 years) in terms of the shortest
time span.
 Taiwan’s
population aging is the result of low death
rate due to advance medical technology, low birth rate,
and prolonged life expectancy.
 Figure
9 shows the life expectancy of all Taiwanese,
male and female people.
Years
85
83.19
83
81
79.84
79
76.72
77
75
73
71
69
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
Both
Male
Female
FIGURE 9: Life Expectancy of Taiwan by Gender (1981-2014)
Source: Department of Household Registration Affairs, Ministry of Interior, ROC, Taiwan.
Year
IV. Challenges Caused by Population Problems
 It
is imperative for Taiwan to think ahead and be
prepared for the major issues that an aged society will
have to face, such as
 aging labor force,
 higher education,
 dependency ratio,
 the pension crisis,
 healthcare reform, and long-term care.
 The Decline in Working Population
 According
to by DHRD (2014), it is shown in Figure
11 that the pink line representing the number of
elderly will be steeper after 2016 than before.
 It
means that the aging problem will be more serious
after 2016 when the proportion of the population
represented by the elderly will exceed that
represented by children, and then continue to rise.
 4.2 Challenges of Higher Education
 Prior
to 1994, The government implemented rather
strict controls over the establishment of new higher
education institutions (HEIs, hereafter).
 Beginning
in the mid-1990s, higher education in
Taiwan experienced a period of unprecedented
expansion in response to global competition,
domestic political elections, and rapid social
change.
 According
to Tsai (2010) and Chang (2014), many
private HEIs, especially in more remote areas, have
found themselves confronted with a serious shortage of
student recruits and a dozen HEIs have encountered
operational difficulties arising from this shortage.
is expected that more universities – up to one-third of
the total – will likely face forced closures or mergers
after 2016, when the size of the 18 year old cohort
declines for the first time.
 It
 Changes in the Dependency Ratio
 According
to DHRD (2014), it is shown in Figure 12
that according to the total dependent population (the
child and elderly population), every 100 persons of
working age (15-64 years) needs to support is
approximately 35.28 people in 2015.
 With
the rapid growth of the elderly population, this
figure will increase to approximately 96.9 people by
2060.
 By
2016, the old-age dependency ratio will surpass
the young-age dependency ratio, meaning that elderly
people will outnumber unemployed youth.
 Figure
13 shows the population pyramid of Taiwan in
1960, 2015, and 2060. One can observe the changes
in the shape of population pyramid of Taiwan over
time.
 In
1960, 2015, and 2060, there are approximately 21,
5.9, and 1.3 people in their prime to support one
elderly person, respectively.
77
 Crisis of Pension Funds
 According
to the Ministry of Finance (MOF,
hereafter), the government had a general budget of
NT$1.95 trillion in 2015, and NT$141.8 billion is
allocated to the pension fund.
 The
real threat to pension system is Taiwan’s
demographics. Although population aging is a
universal phenomenon, the problem is particularly
severe in Taiwan.
 Using
the public servant pension fund as an example,
the public servant pension fund is reserved for the
nation's retired civil servants, military personnel and
public school teachers.
 The
public servant pension fund was reported to run
into a deficit for the first time in 2015.
 For
labor pension schemes, it will be similarly
burdened by the sheer number of recipients. And there
will be fewer workers contributing tax dollars to
support the whole system.
 Medical Care of Elder
 Chen
(2010) indicated that regardless of sex,
healthcare expenses grow with age.
 In
Taiwan, the average healthcare cost was
approximately NT$27,433 per person per year in
2005.
 The
cost for an elderly person aged 60–69 years and
that of an elderly person aged over 70 years were,
respectively, three and five times higher than the
average cost.
 Chen
et al. (2013) pointed out that currently, according
to government statistics, Taiwan spends no more than
7% of its GDP on health care, whereas during 1996–
2008, there was a 38% increase in the older population
(people age≥65 years) and the healthcare expenditure
increased by 169% in this age group.
 In
the next 13 years, Taiwan’s older population will
double, and the current healthcare system will
definitely collapse if no healthcare reform is conducted
in the future.
V. Concluding Remarks
 The
demographic dividend which powered
Taiwan’s growth in the 1970s and 1980s is
now turning into a demographic deficit.
 Taiwan
needs well preparations for dealing
with challenges stemming from its low birth
rate and rapidly aging population.
Part III
84
The Sound Finance Program
85
The Sound Finance Program
Measure
Control of the
financing
amount from the
yearly debt
Estimation of the yearly loan cap
based on GDP growth rate
Restructuring of
expenditures
Promotion of PPIP
Review of statutory and
non-statutory expenditures
Enhancement of the operational
efficiency of public-owned enterprises
Multiplication
of channels for
the cultivation
of sources of
revenue
PPIP: Private Participation in Infrastructure Projects
Review of the policy of privatization and
release of public-owned shares
Activation of public-owned assets
Realization of the principle of user
charge
Appropriate tax reform to inject
revenues
86
Measures

Control of the financing amount from the yearly debt



Debt ceiling ： 40.6%
Estimation of the yearly loan cap based on the GDP growth rate
Restructuring of expenditures


Review of statutory and non-statutory expenditures
Promotion of PPIP (Private Participation in Infrastructure Projects)
 As regards to control of the financing amount from the yearly debt, due to the debt
ceiling, we will estimate the yearly loan cap based on the GDP growth rate so as to
control the financing amount from the yearly debt.
 As for the restructuring of expenditures, we are not only reviewing statutory and nonstatutory expenditures to reduce inefficient expenditures, but are also encouraging
private participation in infrastructure projects to reduce expenditures.
87
Measures

Multiplication of channels for the cultivation of sources of
revenue:
 Enhancement of the operational efficiency of publicowned enterprises
 Review of the policy of privatization and release of
public-owned shares
 Activation of public-owned assets
 Realization of the principle of user charges
 Appropriate tax reform
Among the channels for the cultivation of sources of revenue, we are enhancing the operational efficiency
of public-owned enterprises so as to increase their earnings. Furthermore, we are reviewing the policy of
privatization and the activation of public-owned assets to increase revenues from public-owned
properties. In addition, we are realizing the principle of user charges to increase revenues from fees.
88
Moreover, we focus on adjusting the tax system to collect sufficient revenues.
Tax Reform for Fiscal Sustainability and
Economic Restructuring
89
Tax Reform for Fiscal Sustainability and Economic
Restructuring
Rationales
To achieve fiscal sustainability and carry out
economic restructuring, we are conducting a reform
of our tax system implemented as follows:
Feedback tax
Fiscal Sustainability
Economic Restructuring
Reduction of the tax burden
of low income people
Tax incentive to meet the need
for economic restructuring
90
Fiscal Sustainability - Feedback Tax

Increase in the taxation of high-income people

Dividends: full imputation  partial imputation

Taiwan used to operate an imputation tax system in relation to
the taxation of dividend income for resident individual
shareholders.

That is, when a domestic enterprise distributes dividends to
resident individual shareholders, income tax paid at the
corporate level is treated as imputation tax credit, which can
be fully offset against the resident individual shareholder’s
income tax liability.
91
Fiscal Sustainability - Feedback Tax

Considering the Full Imputation Method adopted in our
Integrated Income Tax System before gave more advantage to
high-income people whose main income was dividends.

Under the proposed amendment, the imputation tax credit
which can be offset against the resident individual
shareholder’s income tax liability will be reduced by one-half.
92
Fiscal Sustainability - Feedback Tax

Increase in the taxation of high-income people.
 In the past, an individual with annual net taxable income
over TWD 4.4 million is subject to a progressive tax rate of
40%.
 Currently, an individual’s annual net taxable income exceeds
TWD 10 million, the applicable progressive tax rate will be
increased to 45%.
Net Taxable Income of year 2015 (NT$)
Tax Rate
0 - 520,000
5%
520,001 - 1,170,000
12%
1,170,001 - 2,350,000
20%
2,350,001 - 4,400,000
30%
4,400,001 -10,000,000
40%
10,000,001 and above
45%
93
Fiscal Sustainability - Feedback Tax

Increase in the taxation of profitable industries

Business taxes imposed on banking and insurance
industries are increased from 2% to 5%.

The 2% business tax for other financial industries, such as
the investment trust industry will remain unchanged.
94
Fiscal Sustainability
- Reduction of the Tax Burden of Low Income People

Increase of certain deductions (e.g. standard deduction,
special deduction for wage income, etc.) with an aim to
improve income distribution.

The tax reform package includes a raise of the income
tax credit from NT$79,000 to NT$90,000 for salaries or
wages and from NT$108,000 to NT$128,000 for the
disabled or handicapped.

The MOF estimates that over 6.47 million taxpayers
could benefit from it, reducing a little the inequality gap
between wage earners and capital holders.
95
Economic Restructuring-Tax Incentives

Enhancement of employment opportunities


Provision of 130% of the salary of newly recruitment
as deductible expenses
Industrial restructuring

Tax credit for R&D

15% tax credit within 1 year

Or 10% tax credit within 3 years
96
Economic Restructuring-Tax Incentives

Removing obstacles in the movement of goods, people and
capital -- Setting-up of Free Economic Pilot Zones (FEPZs)
 In respect of “goods”:
 Foreign enterprises carry the limited logistic functions and
export the goods -exempt from income tax
 In respect of “people”:
 Qualified foreign experts
 50% of the salary is tax exempted in the first 3 years
 In respect of “capital”:
 The earnings distributed by locally-owned overseas
enterprises back to local shareholders for real investment:
tax exempt
97
Thank you
98