Sunday, September 7, 2008

Taiwan's 2009 Central Government Budget

The Taiwan Journal reported on September 5, 2008 that the Executive Yuan sent its annual budget over to the Legislative Yuan last week. Not too many surprises, although the defense budget has some anomalies.

Taiwan has averaged between U.S. 7-10 billion a year on defense. About U.S. $750 million to $2 billion has been earmarked each year for buying weapons, at least based on the assumption that the bulk of secret part of the defense budget goes for foreign procurement of arms.

In the CY08 defense budget, however, a whopping NT $97 billion out of the overall NT $334 billion -- about U.S. $3.1 billion -- was classified. The EY's requested budget for next year (CY09), NT $52.7 billion (about US $1.7 billion) out of a projected NT $325 billion defense budget is classified - about 16.2% of the total budget.

Bottom line is that it has been a mistaken assumption to think that Taiwan has not been dedicating the proper resources to its defense. All too often, the metric of Taiwan's commitment is how much it buys from the United States. If the classified portion of the defense budget indeed does reflect expenditures for arms through the U.S. Foreign Military Sales (FMS) system, then U.S. $1 billion a year dedicated toward buying weapons seems pretty generous.

This does beg one question. Why wouldn't Taiwan taxpayers want its government to be transparent about how their tax dollars are being used? Couple of reasons, but one is that policy is running on inertia - USG wants all bilateral dealings to be handled with the utmost discretion. But, so much for democracy. In any case, just for comparison, the secret NT $50 billion portion of the defense budget by itself is more than the National Science Council's NT $42 billion budget; more than MOFA's budget of NT 31.3 billion; and close to the annual social insurance expenditure of NT $61 billion. But then again, Taiwan may not be so different than the U.S. While 16% of its defense budget is hidden, the Center for Strategic and Budgetary Analysis estimates that 19% of the U.S. FY09 defense budget is classified.

Here's a few excerpts from the Taiwan Journal article:

The ROC government's proposed budget for 2009 will total US$58 billion, marking a 6.9percent increase from 2008, the Cabinet-level Directorate-General of Budget, Accounting and Statistics announced Aug. 28. Education, science and culture will take up the largest pieces of the pie at 18.7 percent, followed by social welfare at 17.9 percent, and defense at 17.2 percent.

According to the DGBAS, the government's 2009 tax revenue is estimated at about US$54.2 billion, a shortfall of US$3.8 billion--the second deficit in a row. The government will issue state bonds and use surpluses accumulated from previous years to cover the shortfall. The budget has been approved by the Cabinet and submitted to the Legislature, which is expected to give its final approval before the end of the year.

The proposed 2009 budget for classified diplomatic missions was slashed to US$120.6 million from 2008's US$181 million and now stands at 6 percent of the Ministry of Foreign Affairs' total diplomatic allocations. The overall budget for MOFA slated for 2009 was US$995.2 million, up US$20.3 million from this year.

MOFA spokesman Henry Chen explained that the cut to ministry's classified diplomatic missions was in line with President Ma Ying-jeou's "flexible diplomacy" policy, which focuses on strengthening relations with the ROC's existing diplomatic allies. Other goals for MOFA in the coming year include forming cooperative relations with countries that Taiwan has no diplomatic ties and expanding humanitarian relief work.
Regarding national defense expenditure, a total of US$10 billion will be allocated for 2009. According to the defense budget plan, as of the end of next year, the number of military personnel will be reduced to a total of 275,000. A five-year national defense buildup plan for 2009 to 2013, roughly US$54.2 billion is expected to be allocated by the government as military expenditure, constituting 3 percent of the gross domestic product. Meanwhile, the plan also proposes a budget of US$2.95 billion allocated by the government in 2009 for the investing in necessary defensive weapons.

Education, scientific research and cultural development will take the biggest share of the government's budget for 2009. The draft budget allocates US$10.8 billion for these sectors in the coming year. Social welfare spending comes in second at US$10.4 billion, marking an increase of 9.8 percent from this year's total.

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