Taiwan boosts 2013 budget proposal to TWD 1.94trn

But budget deficit is expected to rise to TWD 214bn.

According to DBS, the central government’s budget proposal for 2013 was unveiled yesterday. The government plans to spend TWD 1.94trn next year, merely 0.3% more than in 2012. Revenues are projected to reach TWD 1.73trn, also little changed from this year.

Here's more from DBS:

Although tax revenue is expected to grow 2.4% based on the assumption of better economic growth, non-tax revenues (e.g., asset sales) will decline after a one-off increase this year. As a result, the budget deficit will be left at TWD 214bn (1.5% of GDP), a similar size compared to TWD 209bn in 2012.

Overall, the budget proposal reveals that the government prefers to maintain a prudent stance on fiscal policy. The Public Debt Law stipulates that the central government’s debt can’t exceed 40% of the GNP in the previous three years. Including local governments, the debt ceiling is set at 48%. The public debt ratio has been rising persistently since the global financial crisis in 2008. Given that the 2013 budget requires fund-raising of TWD 284bn via bond issuance, the debt-to-GDP ratio (central government) is expected to rise to the 37% level next year, not far away from the legal limit of 40%.

The debt ceiling constrains the space of fiscal spending. This is despite that public debt financing is not a big issue in Taiwan, thanks to the support of abundant savings in the private sector. In the absence of an expansion in fiscal policy to boost the domestic economy, the near-term growth outlook would continue to hinge on the performance of exports.