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
		NT	NT	NT	NT
…………………………………..
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.

Tags: revenue, tax