slicing the cake

Three days ago, in response to an interpolation question in the legislature, the Ministry of Finance announced estimates for next year’s allocation of centrally-funded tax revenues 中央統籌分配稅款 to local governments.  This is a huge pool of money; it accounts for somewhere between 20% and 25% of all local government revenues.  The formula for dividing the money is quite opaque, contentious, and clearly politically influenced.  This year’s allocation is more interesting than normal since several local governments are being upgraded to the status of direct municipality, and direct municipalities are accorded preferential treatment in the formula.  So my question is this: how much is it worth to become a direct municipality?

The figures in the media reports were splotchy and incomplete, and I wanted to know about how much everyone, not just the direct municipalities will get, so I started trying to track down figures from various government sources.  Here’s where everything bogged down.  None of the figures quite match up with the figures announced in the last few days.  The media’s numbers (which came from the Minister of Finance) are quite a bit bigger than the numbers from the Ministry of Finance website.  In fact, they don’t even list this pool as a separated category in the various tables of local government revenues, so I’m not sure if it counts as a subsidy or as tax revenues.  I have no doubt that all these numbers are right, in some way or another; I just can’t quite put them together.

I also can’t quite figure out the formula for allocating funds.  I found the law, in both Chinese and English versions, but it would take me somewhat longer than a few hours to figure out what exactly all those terms mean.  The main ingredients to the pool are portions of the income tax, the (business) operating tax, the commodities tax, and the land value increment tax.  In 2008, the predicted structure was as follows (I give the estimates rather than the actual figures because the world economy collapsed in 2008, and I think the predicted structure is probably a better window on the “normal” structure of the pool):

Billion NT
Income tax 82.3
Commodities tax 14.3
Operating tax 106.9
Land value increment tax 5.3
Total 208.8
Source: MOF website

(The exchange rate is roughly 32:1, so NT 208.8 billion is roughly USD 6.5 billion.)  The formula for allocating funds to individual local governments is very hard to decipher.  The main ingredients are the level of the government, population, the amount of tax collected in that area, land area, outlays for national health insurance, eye of newt, tail of lizard, and paprika.  So my version is going to be a bit wrong.  In other words, I’m not going to be able to answer the big question definitively.  But this is still informative.

Let’s look at numbers downloaded from the Ministry of Finance first.  They have data for 2005-2009, but for simplicity, I’m just presenting 2007 and 2008, since the only big change during that five year period occurred then.  In 2008, Taipei County was upgraded to the status of quasi direct municipality.  I don’t know exactly what this means.  I guess that Taipei County was classified as a direct municipality for at least some of the calculations, but, since they will have another huge leap in 2010, perhaps they weren’t accorded all the privileges of direct municipalities in 2008.

total total Tax pool Tax pool
population revenues revenues Allocation Allocation
2008 2007 2008 2007 2008
Billion NT Billion NT Billion NT Billion NT
Total 23037031 841.4 897.1 193.2 196.2
Taipei City 2622923 161.8 151.5 60.8 41.9
Kaohsiung City 1525642 64.2 59.4 22.9 12.4
Taipei County 3833730 73.2 91.1 10.4 32.7
Ilan County 460902 14.4 16.7 2.6 2.9
Taoyuan County 1958686 36.9 44.9 5.5 6.2
Hsinchu County 503273 16.1 17.9 2.7 3.1
Miaoli County 560397 16.5 21.0 3.3 3.5
Taichung County 1557944 33.8 40.9 6.4 7.2
Changhua County 1312935 29.0 29.5 6.3 6.9
Nantou County 531753 21.6 22.0 3.8 4.3
Yunlin County 723674 21.7 23.4 4.6 5.1
Chiayi County 548731 20.7 23.1 3.9 4.2
Tainan County 1104552 29.1 30.4 5.2 5.9
Kaohsiung County 1243412 30.7 31.0 5.5 6.4
Pingdong County 884838 25.7 31.1 5.4 5.9
Taidong County 231849 10.7 11.9 2.7 3.0
Hualian County 341433 14.8 15.3 3.0 3.3
Penghu County 93308 6.8 7.3 1.5 1.6
Jilong City 388979 14.1 14.2 2.7 3.0
Hsinchu City 405371 13.9 14.5 2.0 2.5
Taichung City 1066128 32.2 34.2 3.0 3.3
Chiayi City 273793 8.8 10.2 1.5 1.7
Tainan City 768453 20.3 23.3 3.0 3.3
Jinmen County 84570 9.2 10.2 1.1 1.2
Lianjiang County 9755 2.6 2.4 .3 .3
All townships 15985742 112.7 119.7 23.3 24.3

Townships are the level below county and city.  Only counties have townships.  (Cities have districts.  Districts do not have independent local governments and do not get any money from this pool.)  So if you live in a county, both your county and township government get a slice of the cake.  However, the township slice is noticeably smaller.  (There are 319 townships varying in size from less than 1,000 to more than 500,000 people.)

I purposely separated out Taipei City, Kaohsiung City, and Taipei County on this table.  The former two are direct municipalities, and Taipei County was made a quasi-direct municipality for the purpose of tax pool allocation in 2008.  Note how much bigger Taipei City’s budget is than everyone else’s.  The Taipei City government is much, much richer than any other local government.  In 2007, its total revenues (161.8) were more than double those of Taipei County (73.2), even though Taipei County’s population is significantly larger.  (This is not exactly a fair comparison, since the Taipei City government has more responsibilities than the Taipei County government.  Even so, the disparity is stunning.)   Kaohsiung City also did quite well in 2007.  Its total revenues (64.2) were quite a bit higher than either Taoyuan County’s (36.9) or Taichung County’s (33.8), even though both have larger populations.

When you look at the allocation of the tax pool, the advantages of direct municipalities are even more stunning.  In 2007, Taipei City (60.8) got six times as much money as Taipei County (10.4).  Kaohsiung City (22.9) got about four times as much as Taoyuan County (5.5) or Taichung County (6.4).

In 2008, the new system eroded some, but not all, of the advantages for the two direct municipalities.  Taipei County more than tripled the amount it got from the tax pool (10.2 in 2007, 32.7 in 2008).  This was still less than Taipei City’s 41.9, but the gap was much smaller.  Note the commensurate changes in the governments’ total revenues.

Another way to look at this system is to look at per capita distributions.  This is the same table, but with per capita figures.

total total Tax pool Tax pool
population revenues revenues Allocation Allocation
Per capita Per capita Per capita Per capita
2008 2007 2008 2007 2008
Total 23037031 36523 38943 8387 8516
Taipei City 2622923 61685 57756 23181 15986
Kaohsiung City 1525642 42056 38952 14981 8117
Taipei County 3833730 19094 23752 2707 8539
Ilan County 460902 31165 36238 5652 6278
Taoyuan County 1958686 18844 22945 2784 3189
Hsinchu County 503273 31944 35509 5408 6191
Miaoli County 560397 29496 37417 5869 6314
Taichung County 1557944 21667 26234 4081 4596
Changhua County 1312935 22086 22485 4826 5240
Nantou County 531753 40617 41292 7060 8024
Yunlin County 723674 30026 32355 6288 7096
Chiayi County 548731 37669 42175 7081 7669
Tainan County 1104552 26307 27536 4735 5326
Kaohsiung County 1243412 24676 24923 4432 5132
Pingdong County 884838 29063 35108 6080 6717
Taidong County 231849 46201 51524 11451 12877
Hualian County 341433 43268 44845 8899 9772
Penghu County 93308 72682 78049 15799 17337
Jilong City 388979 36253 36430 7061 7689
Hsinchu City 405371 34372 35857 4912 6068
Taichung City 1066128 30163 32037 2846 3127
Chiayi City 273793 32152 37318 5596 6205
Tainan City 768453 26438 30351 3854 4236
Jinmen County 84570 109285 120920 12590 14387
Lianjiang County 9755 267657 248484 26573 30310
All townships 15985742 7050 7488 1460 1520

If you ignore the direct municipalities, the system is basically progressive.  The more populous, more urban governments get a lot less money per person than the more rural, less prosperous, and more sparsely populated governments.  So Taichung City only got 2846 NT per person in 2007, while Taidong County got 11451 per person.  The three highest numbers belong to the offshore islands: Penghu, Jinmen, and Lianjiang.  This is reinforced by the fact that Taichung City, as a city, does not get any of the money for townships, while people in Taidong County, for example, got 11451 per person for the county government plus their cut (which was presumably higher than the average of 1460 per person) of the funds for township governments.

Of course, you can’t ignore the direct municipalities.  When you look at a per capita basis, the unfairness of the old system glares at you.  Taipei City, the richest area in Taiwan, got nearly as much per person as Lianjiang County in 2007, the poorest, smallest, and most remote place in Taiwan (or not in Taiwan, as the case may be).   Even after the reform in 2008, Taipei City (15986) still got five times as much per capita as Taichung City (3127).

Ok, what about the jump between 2009 and 2010?

Population (2008) 2009 allocation 2009

per capita

2010 allocation 2010

per capita

Billion NT NT Billion NT NT
total 23037031 360.2 15636 458.4 19898
Taipei 2622923 56.3 21465 58.4 22265
Xinbei 3833730 34.2 8921 60.3 15729
Taichung 2624072 25.8 9832 35.6 13567
Tainan 1873005 24.6 13134 33.0 17619
Kaoshiung 2769054 40.1 14481 54.4 19646
all others 9314247 179.2 19239 216.7 23265

Keep in mind that the figures reported in the media do not match with the ones listed above (360.2 billion is much larger than the 196.2 billion listed above for total spending, and 2008 and 2009 were almost identical), so I’m missing something in their accounting.  However, the relative sizes still match.

Note that the whole pool is growing by roughly 20%.  I’m not sure if the MOF is putting more of the same sources into the pot, or if it is putting revenues from new sources into the pot.  At any rate, the pot is bigger, and the MOF promised that no one would see their allocation decrease next year.  Overall, this table looks a lot less unfair than the previous ones.  In 2009, Taipei City’s per capita allocation was only about 40%, not double) more than the national average.  Taipei County’s per capita allocation is about half the national average, whereas above it was roughly equal to the national average.  So maybe I’ve been overstating things.

The big headline over the past few days is that Xinbei City’s allocation will nearly double in 2010, and it will surpass Taipei City’s.  The other theme has been politicians from Taichung and Tainan complaining that they are not getting their fair share.  In fact, Tainan and Kaohsiung seem to do ok in this system.  Taichung is the city that should complain.  Taipei City is still a winner, though not by nearly as much.  Even though it has roughly the same population as Taichung and Kaohsiung and a lot less land area than either, it will still get more money than either of those two cities.

Perhaps the most fascinating thing about this table is the last line.  All those other counties that didn’t get upgraded to direct municipality look like they will take a fairly big cut of the money.  Perhaps the new formula has taken away the advantage that direct municipalities used to have.  I really want to see what Taoyuan County gets in the new system, since it is the most similar county to the new direct municipalities.  I would bet that Taoyuan will get somewhat less per capita than either Xinbei or Taichung, though the gap can’t be too great.

Even though I can’t reconcile the two data sources, it is clear to me that the system has become much more equitable over the past five years.  It is no longer clear that direct municipalities get a grossly unfair cut of the cake.

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