Failure of tax reform reveals gov't lacks conviction, ability

When the new Finance Minister Chang Sheng-ford came to office last week amid the debate over the content of the capital gains tax bill, he expressed the government's goal to get the bill passed first and improve it later.

Chang's declaration is probably meant to be the government's show of resolve on tax reform, that it would rather have anything than to have nothing at all. What it actually revealed, however, is its lack of a plan and determination.

The truth is this: a bad tax bill is actually worse than no tax bill. A tax wrongly punishing the wealthy will drive investment away while a watered-down bill will have no effect on closing the wealth gap. If the government cannot get the difficult task done the first time, it is not likely that it will muster enough support or political will to improve the bill later on. A half-measure bill is only good news to detractors of tax reform as it will kill the momentum for true reform.

What's worse, Chang's statement underscores the wavering nature of the government and the toxic uncertainty it engenders. Businesses might not like paying more tax but not as much as they fear policy chaos. A finance minister's public announcement of the government's “get it first and fix it later” vision is a killer for investor confidence.

The government's lack of vision in tax reform also leads to its unnecessarily divisive and populist tone. By highlighting “tax justice” in its rhetoric and using local tycoon Terry Gou as an example of what went wrong, the government wrongly started a class battle on tax reform, which should be about building a balanced and sustainable tax system. The government saw the backslash yesterday when Gou proposed his own version of tax reform in a 60-minute press conference, a thinly veiled criticism of the government's inability to run the nation properly.

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