Editor’s note: This article is part one of a two part series that will examine three recently passed amendments in Taiwan’s Legislative Yuan, which carry the capacity to fundamentally change the way that the government operates—and to seriously weaken both the Constitutional Court, and the current administration of President Lai Ching-te. Part one will focus on the amendments to the Act Governing the Allocation of Government Revenues and Expenditures, which affects the balance of financial resources between the central government and local administrations. Part two, forthcoming in a near-term future issue, will focus on the amendments to the Constitutional Court Procedure Act and the Civil Servants Election And Recall Act.
Taiwan’s current political landscape is one of divided government: the Democratic Progressive Party (DPP, 民進黨) controls the executive branch, while the opposition Kuomintang (KMT, 國民黨) controls the legislative branch in a coalition with the Taiwan People’s Party (TPP, 民眾黨). In addition to the legislative branch, the KMT also holds the vast majority of local government positions (see image below). In this context, the KMT has considerable leverage over the DPP in regards to both the government’s budget and local-level administration.
Image: Taiwan’s 2022 local election results, which resulted in most county and municipal administrations operating under KMT administration. (Image source: 沁水湾 – Own work, CC BY-SA 4.0)
Recently, the KMT-controlled Legislative Yuan (LY, 立法院) passed three bills that seek to tighten requirements to recall elected officials, to change the Constitutional Court Procedure Act (憲法訴訟法), and to alter the balance of national-local allocations in the government’s budget. The changes to the Civil Servants Election And Recall Act (公職人員選舉罷免法) would impose new requirements on constituents wanting to recall their local government officials. The proposed changes to the Constitutional Court could effectively make the court non-functional. [1] (The recall amendment, and the legislation affecting the court, will be further discussed in a future article.) The amendments are currently being appealed by Premier Cho Jung-tai (卓榮泰) and are being sent back to the LY for review.
While the recall and court bills could paralyze government accountability mechanisms, the more serious challenge comes from the recently passed amendments to the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法, hereafter referred to as the “Act”). The proposed amendments to the Act are more than measures of fiscal policy: they represent a strategic move to shift resources and power away from the DPP-controlled executive branch and towards KMT-controlled localities, with significant consequences for Taiwan’s governance and democracy.
Proposed Amendments to the Act
Currently, taxes in Taiwan are divided between the central and local governments, with 75 percent going to the central government and 25 percent going to local governments. This revenue-sharing ratio was last adjusted in 1999 when the KMT-led government increased the central government’s share from the previous ratio of 60 percent for the central government and 40 percent for local governments. Under the argument that this ratio has harmed local governments’ finances and that power has become too centralized, the amendments to the Act revert back to the pre-1999 ratio of 60 to 40. Notably, the proposed amendments do not add additional responsibilities to local governments, essentially allowing more resources to flow into local offices without any increased responsibility.
Political Strategy behind the Act
The KMT has not won a presidential election since Ma Ying-jeou’s (馬英九) re-election in 2012. The DPP has won the three subsequent presidential elections (2016, 2020, and 2024), and held a majority in the LY from 2016-2024. Meanwhile, the KMT has fared significantly better in local elections, including the local election years of 2018 and 2022. With the KMT having the most seats in the LY after the 2024 election (52 versus the DPP’s 51 seats), and the TPP adding their 8 seats in a coalition with the KMT, the KMT/TPP caucus currently holds a majority in the legislature. By using the power of the purse, the KMT caucus in the LY can undermine the DPP-led central government by forcing difficult cuts in central government spending and advancing its own policy agenda.
In response to criticism, the KMT has said that the amendments to the Act are necessary to address long-standing fiscal imbalances and to promote local development. KMT legislators Chang Chia-chun (張嘉郡) and Hsu Yu Chen (許宇甄) have said as much: claiming that the aim of these amendments would be to increase local governments’ financial resources, and to address the urban-rural divide in Taiwan society. Additionally, KMT Caucus Secretary-General Lin Szu-ming (林思銘) has defended the amendments by pointing out that they reward fiscally responsible local governments, giving them the additional resources needed to implement policies and improve local conditions. The KMT has also accused the DPP of hypocrisy, noting that President Lai advocated for similar changes to increase local government funding when he was the mayor of Tainan, but is now criticizing the amendments. These responses illustrate how the KMT frames the amendments as equitable reforms to empower local governments while positioning themselves as champions of decentralization and fiscal fairness. Additionally, these framings overlook the monetary benefits that the KMT can gain from these amendments due to their patronage networks in local communities.
KMT Patronage Networks: Past and Present
The KMT’s reliance on patronage networks has deep historical roots, dating back to Taiwan’s martial law period (1949-1987). During that time, the KMT maintained power not just through a repressive political system, but also through extensive patronage networks at the local level that distributed resources, jobs, and government contracts to people who were considered loyal to the KMT. These networks were integral to maintaining the KMT’s authority over Taiwan, and they became synonymous with corruption and cronyism.
Despite Taiwan’s democratization, elements of these patronage networks persist in contemporary politics. Local governments, particularly in KMT-controlled areas, often serve as hubs for patronage. Resources allocated to these governments can be funneled into projects that benefit political allies of the KMT, creating a feedback loop that strengthens the party’s grassroot support. The amendments to the Act could further entrench these networks, giving the KMT-controlled localities more financial flexibility to reward supporters. A number of high profile cases, outlined below, illustrate how these networks function and why they continue to raise concerns about corruption and misuse of political power.
- Sra Kacaw (鄭天財): Sra is a current KMT legislator who was recently implicated in a corruption scandal involving green energy companies. Investigations revealed that between 2020 and 2023, he allegedly accepted bribes amounting to several million New Taiwan dollars in exchange for granting special assistant titles to business representatives. These titles provided the recipients with influence in navigating bureaucratic processes, including applying for licenses and resolving business challenges. Kacaw allegedly leveraged his position to pressure government agencies, using his office to conduct public inquiries and gain access to these agencies to advance the interests of the companies involved.
- Yen Kuan-heng (顏寬恆): Yen is a current KMT legislator who was found during the 2021 election in Taichung to have illegally constructed a home on state-owned lands. Investigations later uncovered that he had embezzled NTD $1.08 million (USD $32,637) in public funds by creating a fake individual as his legislative aid. In July 2024, Yen was convicted of forgery and violations of the Anti-Corruption Act (貪污治罪條例), receiving a prison sentence of over eight years.
Implications for Central Government Spending
Reverting back to the pre-1999 ratio of 60 to 40 would mean a significant drop in central government spending. According to Directorate-General of Budget, Accounting and Statistics Minister Shu-Tzu Chen (陳淑姿), the proposed amendments would release NTD $375.3 billion (USD $11.41 billion) more to local governments, which would lead to a corresponding drop in central government spending ranging from 28 percent to 37 percent, depending on whether or not defense spending is reduced.
As a result, popular social programs—such as rent subsidies, childcare and elderly care—could face significant budget cuts under the new revenue sharing formula. These programs, which have been central to the DPP’s social policy agenda, are likely to be deprioritized as the central government struggles to allocate funds across critical areas. This would not only impact ordinary Taiwanese citizens, but create political vulnerabilities for the DPP, which has championed these initiatives as part of its governance strategy. In addition to social programs, defense spending is at particular risk. Taiwan’s defense budget, already under scrutiny, could see substantial reductions depending on how the central government changes its budget as more money is to be sent to local governments.
Broader Implications for US-Taiwan Relations
The United States has consistently emphasized the importance of Taiwan’s self-defense capabilities. Any reduction in defense spending could strain US-Taiwan relations, especially with President Donald Trump now in the White House for a second term. Any lowering of defense spending will be seen in Washington as a sign that Taipei is not serious about defending itself. In light of past comments by President Trump criticizing Taiwan for stealing the US chip industry and for not spending enough on defense, it is imperative for defense spending to increase.
58 percent of Americans already oppose directly intervening if China invades Taiwan, reflecting a growing reluctance among the US public to support military involvement in overseas conflicts. This sentiment could further erode US public support for Taiwan if the Taiwanese government is not perceived as demonstrating a commitment to its own security. For Taiwan, maintaining and increasing its defense budget is not only a matter of national security, but also a critical component of the US-Taiwan relationship.
What’s Next?
The Executive Yuan (行政院) has said that the amendments to the Act have no clear implementation date, and it is also unclear whether if the Act will apply to the current fiscal year or the following fiscal year (when the latter is eventually promulgated by President Lai). Minister Shu-Tzu Chen has stated that the current budget will not be changed in accordance with the passed amendments to the Act. With the Executive Yuan clearly stating that spending won’t be changed, funds will have to be raised somehow to offset the expected drop in central government fiscal resources. Taiwan is in a unique position to either raise taxes or borrow to plug the gap. Taiwan has one of the lowest tax burdens relative to other Organization for Economic Co-operation and Development (OECD) and Asian countries, at 9.2 percent of GDP. (The average OECD country has a tax burden of 33.9 percent of GDP, and the average Asian country has a tax burden of 19.8 percent of GDP.)
Therefore, Taiwan’s government has room when it comes to raising taxes on individuals and businesses. If raising taxes is not politically possible under the current divided government, then current tax rates and spending could be sustained through borrowing. Currently, Taiwan has a debt to GDP ratio of 24.2 percent. Compared to other OECD countries, Taiwan has very little debt compared to the size of its economy, with the average OECD country having a debt to GDP ratio of 111.69 percent. Changes to the Public Debt Act (公共債務法), which caps central government debt at 40.6 percent of GDP, could be used by the Lai Administration as a bargaining chip in negotiations with the LY to agree to promulgate the amendments to the Act.
The main point: The amendments to the Act, if implemented, could lead to significant declines to central government spending. Because the KMT now controls the legislature and hasn’t won a presidential election since 2012, the party appears to be trying to exert its power by weakening the central government and empowering local governments–a majority of which are controlled by the KMT. With a more transactional US president now in office, and escalating threats from China, any cut in defense spending would likely raise concerns in Washington about Taipei’s commitment to its own defense.
[1] Because of retirements and the LY not taking up President Lai Ching-te’s (賴清德) nominees, there are currently only eight serving justices currently serving. The proposed amendments would require at least nine justices to rule on if bills passed by the LY are constitutional or not.