The income gap between the top one-fifth in Taiwan and the bottom one-fifth is now 8.22 times, according to the latest survey by the Directorate General of Budget, Accounting and Statistics. The average disposable household income of the richest group last year was NT$1.825 million (US$57,000), while the poorest group received only NT$222,000 (US$6,940), according to the survey. When taking into account the government’s subsidies to low-income families through the living allowance and social insurance premiums, the gap is reduced to 6.34 times, yet this is still the second widest gap ever.
The Economic Daily said in an editorial that high personal income countries, including Taiwan, generally face a widening gap between the rich and the poor as a result of globalization. This phenomenon means that developing countries offer lower wages, and thus attract orders from high-income countries to make products for less. Unless more jobs are created in developed countries, these countries usually suffer higher unemployment rates. Overall wages decline and income distribution deteriorates, with the rich getting richer and the poor getting poorer over years. This problem has worsened with the liberalization of trade and economic exchanges, allowing less time for labor and industry to adjust accordingly in developed countries.
According to the United Daily News, in knowledge-based economies, the rich are able to multiply their financial assets by taking advantage of their knowledge and capital. The poor are relegated to labor-based occupations, continuing to earn low wages. This only deepens the divide between the rich and the poor.
Ma government considers “luxury tax”
The Taipei-based China Times commented that Taiwan’s tax system is the culprit in widening the gap between the rich and the poor. Over 70 percent of the current individual income tax comes from salaried workers while those trading big money stocks or buying luxury mansions are not required to pay capital gains tax. The advantage is skewed towards the wealthy and needs to be adjusted. Otherwise, the wealth gap between the rich and the poor will continue to widen even during robust economic times.
Commenting on the widening income gap between the rich and the poor, President Ma Ying-jeou said Taiwan’s economic growth rate is forecast at 8.24 percent this year. “We have reason to believe that the gap this year will be lower than that for last year,” he said. President Ma also stressed that, when he took office in 2008, the gap between the rich and the poor was 6.05 times. Because of the negative economic growth of 1.91 percent in 2009, the gap between the rich and the poor rose to 6.34 times, but slightly below the peak of 6.39 in 2001.
Premier Wu Den-yih does not rule out the introduction of a “rich people’s tax.” However, as wealth is not a sin, the government disagrees with such a tax, he said. Instead, the government is proposing a “luxury tax,” that would impose a tax on purchases of general luxury goods or services, such as private jets, yachts, luxury cars, lavish banquets, works of fine art and jewelry. As these are non-essential luxuries, such a tax would be less controversial, according to the government.
Decreased domestic demand slows growth
Christina Liu, minister of the cabinet-level Council for Economic Planning and Development referred to Simon Kuznets, who praised Taiwan’s economic development as a miracle because Taiwan enjoyed rapid economic growth in the 1970s, but still retained a fairly equitable income distribution. The Nobel laureate in economics noted that Taiwan decreased the gap between the rich and the poor at a time when other countries went the opposite way. In the past, Liu said, Taiwan was a top student, now it is neither the best nor the worst. Nevertheless, she plans to reduce the wealth gap.
She said that domestic demand, brought on by increased investments, played a key role in the economic growth of the first two quarters this year. Much more economic strength is needed to change the fundamental issues affecting the rich and the poor. Therefore, it is important to increase domestic consumption and investment in order to spur continued economic growth and narrow the income gap, she said.
Domestic investment is not a panacea
The Economic Daily News questioned Liu’s proposal to expand domestic consumption. Expansion of domestic demand tends to encourage speculation in real estate and the stock market, which widens the gap between the rich and the poor, according to the paper. Furthermore, the government has tried to attract foreign investment in more capital-intensive large companies and such investments only provide limited opportunities for unemployed workers.
Professor Chuang Chi-ming of National Taipei University of Education wrote in the China Times that it is absolutely wrong to blame the government for all the gaps between the rich and the poor. The responsibility must be shared by society, business and the public. An accepted consensus is that individuals hold the greatest responsibility for getting out of poverty. Government can only extend emergency help, but it cannot alleviate poverty altogether.
Chuang noted that many people believe that the government should resolve the issue of wealth inequality, but this thinking puts little social pressure on individuals to work harder, which only contributes to the widening gap. Furthermore, large enterprises should not only focus on making profits, but also on allocating more benefits to workers and promoting public well-being. Finally, each individual is responsible for their situation. In an era where certain professions die out, there will be new ones to take their place. Each individual should continue learning in order to maintain a competitive edge in finding work and raising their potential income, Chuang stressed.