Taiwan reveals cautious first budget as President Tsai Ing-wen pledges growth

Taiwan's President Tsai Ing-wen delivers a speech during her visit to Paraguay on June 29, 2016.
Taiwan's President Tsai Ing-wen delivers a speech during her visit to Paraguay on June 29, 2016.PHOTO: AFP

TAIPEI (AFP) - Taiwan's new government unveiled its first budget on Thursday (Aug 18) as it tries to kickstart the island's fragile economy, but the cautious spending plan raised questions over whether it was investing enough.

President Tsai Ing-wen was voted in by a landslide in January partly because of public anger over stagnant wages, lack of job opportunities and a rising cost of living.

Trade deals with China under former leader Ma Ying-jeou were seen as helping big business, not the ordinary citizen.

Ms Tsai has pledged to boost innovation in several sectors, including technology and defence, as well as diversifying away from reliance on trade with China.

But the first budget under Ms Tsai, announced by the Cabinet, only raised spending for 2017 by 1.1 per cent.

The biggest increases were in education and social welfare. Defence was given a marginal lift.

The budget also included NT$186.9 billion (S$7.98 billion) on public works and NT$45.9 billion to foster five key industries flagged by Ms Tsai, including creating a "silicon village" for Asia.

Analysts said it may be too conservative to provide meaningful growth.

"This is perhaps much too cautious given that the world is going through a longer period of stagnant growth," Ms Angela Hsieh, an economist at Barclays, told AFP.

Ms Hsieh compared it with South Korea, which already has higher growth momentum than Taiwan and may be increasing spending by at least 3.5 per cent to boost sluggish performance.

But Premier Lin Chuan defended the plan to reporters, saying economic growth could not be provided through government investments alone.

"The purpose behind the government's (investments) actually is to create a good environment for private investments to increase," he said after the budget was approved by the Cabinet.

The budget will be deliberated in parliament, with a date yet to be set.

Traditionally an export-driven technology hub, Taiwan has suffered from increased competition and stagnating demand globally.

In May, the government revised down its 2016 growth forecast to 1.06 per cent, down from earlier prediction of 1.47 per cent.

However, the island managed to come out of recession in the second quarter after three successive quarterly contractions, thanks to demand for components for Apple's new iPhone 7.

Ms Tsai is under pressure to show results as her approval rating this week slipped to under 50 per cent for the first time.

Ties with China have deteriorated since she took office in May, as Beijing does not trust her China-sceptic Democratic Progressive Party.