Taiwan Warns Law Changes May Have ‘Serious Impacts’ on Budget
(Bloomberg) -- Taiwan’s government said a legal change to budget rules could derail its 2025 spending plan, underscoring challenges the opposition is posing to the new leader of the democracy at the core of China-US tensions.
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An amendment passed by the opposition that reduces the share of tax revenue allocated to the central government, directing it instead to cities and counties, may mean the budget is “seriously impacted, and even has to be redone,” Cabinet spokesperson Michelle Lee said Monday at a briefing in Taipei.
The legal changes cloud the outlook for Taiwan’s 2025 spending plans, which include a record amount in military funding aimed at deterring China. The budget is in the final stages of a legislative review and had been expected to be finalized in the coming weeks.
One specific issue with the new budget rules is that while money was shifted to local governments, the responsibility for providing certain public services remained at the central level. That meant it was unclear how some services would be funded should the changes go into effect.
“If the funding is transferred to the local governments, the business originally undertaken by the central government should be returned to local governments,” Chen Shu-tzu, head of the statistics bureau, said at the same briefing.
President Lai Ching-te can send the amendment back to the legislature so it can reconsider, though lawmakers would likely approve it again fairly quickly.
He could then send it to the Constitutional Court for review, a process that can take months. That move could be complicated by the fact that also on Friday opposition lawmakers passed a legal change that requires more justices on that court to make a decision than are now in place due to retirements.
Lai has faced a series of challenges from the Kuomintang-led opposition since he took office in May. Shortly after he became president, the opposition tried to change the law to expand the power of the legislature that it controls. That move spurred some of the biggest protests in years and was ultimately blocked by the Constitutional Court.
The latest legal changes sought by the opposition have also been controversial, prompting a few thousand protesters to gather outside the legislature on Friday.
The KMT has said budget rules needed to be revamped because funding was concentrated at the central level and local governments needed more fiscal independence. The ruling DPP has said the changes mean more money would go to cities and counties controlled by the KMT and less to those led by the ruling party.
At the same time, China has pressured Lai’s government by holding major military drills around the archipelago of 23 million people in May and October. It also sent a large number of military vessels near Taiwan earlier this month after Lai stopped in Hawaii and the US territory of Guam during a trip to visit Pacific nations.
Finance Minster Chuang Tsui-yun said the changes to budget rules could affect policies related to economic development and “defense and national security,” though she didn’t go into detail.
Chuang said the central government would need to release an extra NT$375.3 billion ($11.5 billion) to local governments after the new rules take effect, a change that could require it to increase borrowing.
The amendment would not affect the government’s bond issuance plan for the first quarter of next year, National Treasury Administration Director General Chen Po-cheng told Bloomberg News in a phone interview.
Also on Monday, the Ministry of Finance said it would hold 17 bond sales next year, compared with the 19 sales in 2024.
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