Taiwan Legislature Passes 2007 Budget

UNCLAS SECTION 01 OF 02 TAIPEI 001665 SIPDIS SIPDIS STATE PLEASE PASS USTR STATE FOR EAP/RSP/TC, EAP/EP USTR FOR ALTBACH and Stratford USDOC FOR 3132/USFCS/OIO/EAP TREASURY FOR OASIA/TTYANG TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN AND NY FRB MARIA BOLIS E.O. 12958: N/A TAGS: EINV EFIN ECON PINR TW SUBJECT: Taiwan Legislature Passes 2007 Budget REF: 06 TAIPEI 03199 SUMMARY -------------- ¶1. In June, Taiwan's legislature passed the 2007 central budget, including the first year of funding for military procurement programs. The long delay in budget legislation may act as a drag on Taiwan's 2007 economic growth. According to estimates by economic think tanks, however, the rate will remain well above 4%. END SUMMARY. Long Delay in Budget Legislation -------------- ¶2. Taiwan's Legislative Yuan (LY) passed the 2007 central budget on June 15, 197 days behind the legislation deadline of November 30, 2006 set by Taiwan's Budget Law. The Directorate General of Budget, Accounting and Statistics (DGBAS) believes the delay has led to a decline in public expenditure of NT$14 billion (US$424 million) in the first quarter (Q1) and another decline of NT$9.3 billion (US$281 million) in Q2. ¶3. The DGBAS estimates that the budget delay will cause a 0.25-0.3 percentage point decline in Taiwan's 2007 real GDP growth, because major public construction projects lack funding. Nevertheless, major local economic think tanks believe that Taiwan's economic growth for this year will remain well above four percent. Budget Cuts and Freezes -------------- ¶4. The LY cut 2.1% in funding proposed by the Executive Yuan (EY) for 2007 administrative programs. The 2007 cuts included a 40% slash in special allowances for the President, a 20% slash in information technology equipment procurement, and an 18% cut in outsourcing funding. ¶5. The LY also froze 3.7% of the approved funding for the central authorities, which will not be released until the EY meets the LY-set requirements. One quarter of funding for the Central Election Commission (CEC) will not be available for CEC usage until the CEC is reorganized with a composition of CEC commissioners acceptable to the opposition Koumintang (KMT) and People First Party (PFP). 2007 Privatization Program Stalled -------------- ¶6. At the insistence of the opposition KMT and PFP, the LY eliminated the 2007 privatization program by cutting NT$20.1 billion (US$609 million) from sales of equity shares in state-owned enterprises. Under the 2007 privatization program, the Ministry of Economic Affairs will release equity shares in the Taiwan Salt Company (TSC) and the United Microelectronics Company, and the Ministry of Finance will sell equity shares in the Taiwan Tobacco and Liquor Corporation (TTLC). Both TSC and TTLC are 100-percent owned by Taiwan authorities. Military Procurement Funding -------------- ¶7. Three years after the KMT and PFP totally blocked the special budget for three military procurement programs, the EY included the first year of funding for these three programs in the 2007 regular budget proposal. The LY approved the 2007 military procurement, but cut 60% of the required funding to NT$9.9 billion (US$300 million). TAIPEI 00001665 002 OF 002 The LY did not cut funding for two programs, including NT$6.1 billion (US$184.8 million) for P3C anti-submarine aircraft and NT$3.6 billion (US$109 million) for Patriot II upgrades. However, the LY totally cut NT$11.3 billion for Patriot III missiles. The LY cut 95% of NT$4.5 billion (US$136 million) for submarines, with the remaining 5% to finance assessment of the submarine procurement. YOUNG