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Challenges facing Taiwan's next president

On 5 May the ECCT's Greater China Business committee hosted a talk featuring guest speaker Professor Chu Yun-han, President of the Chiang Ching-Kuo Foundation. The speaker gave what he referred to as a "sobering analysis" of the political, economic and social landscape and associated challenges that will face Taiwan's next president, set to be elected and take office in 2016. He concluded that whoever wins the election will face a number of serious challenges that will require tough decisions and make it very difficult to remain popular.

In his analysis of President Ma's presidency, Chu believes that history will judge him more favourably than his current critics. While the president's honeymoon period only lasted about six months into his first term, looking at his legacy, he has actually had some significant achievements. Most notably he laid a foundation for cross-Strait peace by de-escalating military tension, resuming official dialogue and negotiations, restoring trust and friendship with Taiwan's major allies and trading partners, expanding the island's international space, steering Taiwan through the global financial crisis and pushing through two major government re-organisation bills.

However, there are many intractable factors in Taiwan, structural, institutional and ideological that are beyond the ability of any political leader to control and it is these that has led to popular disappointment with the president. While many problems facing Taiwan are shared with other countries, such as unfavourable demographics (an aging population), economic and fiscal trends (such as national health, pension and social benefit funding shortfalls), some problems are unique to Taiwan. Most notably, the cross-Strait peace dividend has turned into a double-edged sword. While Ma's record of managing cross-Strait relations was enough to get him re-elected in 2012, his overall record still fell far short of campaign promises and the high expectations of the great majority of Taiwan's populace.

Popular opposition to the president's handling of cross-Strait relations has grown in his second term over anxiety over Taiwan's increasing economic dependency on China, discomfort with the disappearing political and social buffer between Taiwan and China (thanks in part to a large influx of Chinese tourists), the uneven distribution of benefits of cross-Strait exchanges and the lack of a solution to stagnant wages and the widening of wealth disparity.

In addition, while political partisanship is not unique to Taiwan, Taiwan's social and political climate is particularly "poisonous", according to Chu given the polarization of partisan politics, the highly partisan and fragmented news media and an over-mobilized civil society with restless and contentious social movements. On top of this are institutional hurdles, particularly legislative gridlock and a fragmented policy process.

In terms of fiscal constraints, President Ma inherited a government with very little spare capacity to borrow and spend. When the DPP assumed power in 2000, the central government's total outstanding debt was less than 24% of GDP. By the time President Chen Shui-bian had left office, the ratio had climbed to 35%.

If the government's legal liabilities for the public-sector pension schemes are added, the broad definition of national debt would be close to 72% of GDP. The president's stimulus package aimed at stabilizing the economy in 2008-2009 virtually used up all the government's remaining borrowing capacity. There is now very little room to manoeuvre given Taiwan's statutory debt limit and relatively low tax revenue, which amounts to less than 12% of GDP, far lower than the OECD average. While the government could sell assets to raise revenue, most of the best assets have already been sold.

The Ma administration also inherited quite a few proverbial cans that had been kicked down the road for too long. For example, the deficit of the Universal Health Insurance, the huge accumulated loss of state-run Taiwan Power and underfunded pension schemes. As president's are prone to do, Ma put off many painful decisions until his second term, such as electricity price hikes, an increase in health insurance fees and cutbacks in retirement benefits for public-sector employees and military personnel. Given the inevitable decisions that had to be made, Ma was "doomed to be unpopular", according to Chu.

While the Kuomintang succeeded in winning both the presidency and the legislature, the purported unity that was supposed to result did not materialize once the Ma administration lost the control of the legislative agenda, according to Chu. In Chu's view, the pendulum of political power has swung so decisively toward the legislative branch that the legislative speaker, the KMT legislative caucus and maverick KMT legislators are empowered to tinker with all major legislative proposals proposed by the cabinet at will. Moreover, the opposition DPP is also empowered to wield considerable bargaining power over the legislative agenda and has the power to obstruct or veto the KMT government's major legislative initiatives.

Under the so-called "party caucus negotiation system" (PCNS), which became part of the parliamentary procedures since 1999, any political party or coalition with three or more seats in the legislature can form a party caucus. Each party caucus can send two representatives to "closed-door" negotiation meetings convened by the speaker. Any party caucus can make a request to send any pending bills or amendments to this negotiation process and take them out of the committee stage. To avoid confrontation in the legislature, it has become commonplace for caucus members to negotiate and make compromises behind closed doors, thereby violating democratic principles of accountability, transparency and political representation.

Whoever wins in 2016 will face the same environment with the associated problems and challenges. While Chu expects the DPP to win both the presidency and legislative elections, if the KMT is united behind a viable candidate, the race could still be close. While DPP leader Tsai Ying-wen seems unstoppable at present, it remains to be seen if she can survive scrutiny over her cross-Strait policies.

While the DPP is likely to gain more legislative seats, Chu questioned whether the party could win an absolute majority and avoid stalemate. While Chu expects the majority of young voters (around 300,000 so-called millennials) to vote for the DPP, this would be counter-balanced if 1.2-1.5 million KMT supporters who did not vote in the 2014 municipal elections came out in numbers to vote for the KMT. According to Chu, cross-Strait relations will still be the biggest defining issue in 2016, although independent voters, who care more about other issues, will be an increasingly important factor.

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