President Tsai Ing-wen’s administration proposed a modest spending increase on infrastructure in an overall budget plan that will pare the government’s debt level.
In a draft budget for 2017, the cabinet proposal includes a 3.1 percent increase in spending on public works to NT$186.9 billion ($5.95 billion) as part of an overall 1.1 increase in spending from 2016. The plan will be sent to the island’s legislature to be debated and passed.
Taiwan’s central bank has called for the use of expansionary fiscal policy as benchmark interest-rate cuts struggle to spur growth. The latest proposal reflects the new government’s caution, with its debt-to-GDP ratio set to fall from 34.1 percent in 2016 to 33.69 percent next year under the plan.
“This is perhaps much too cautious given that the world is going through a longer period of stagnant growth,” said Angela Hsieh, a regional economist at Barclays Plc. in Singapore. “Given that core inflation is about 0.8 percent, a nominal spending increase of 1.1 percent means practically no meaningful increase in real terms.”
Even South Korea, where economic growth could top 2 percent this year, is looking at boosting spending, Hsieh said. The government is considering implementing an extra budget, Finance Minister Yoo Il Ho said Thursday.
Taiwan’s economy is expected to grow 1.06 percent this year, according to a May government estimate. Exports turned positive for the first time in a year-and-a-half in July ahead of the release of a new Apple Inc. smartphone. Taiwanese companies ship many of the components found in the iPhone and other devices.
“The purpose of fine-tuning the budget is to reduce the deficit, even now while we experience an economic downturn,” Premier Lin Chuan said in Taipei.
Lin and the ministers in his cabinet took office on May 20, when Tsai was inaugurated as Taiwan president.