VZCZCXRO1717
RR RUEHGH
DE RUEHIN #1665/01 2060758
ZNR UUUUU ZZH
R 250758Z JUL 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6130
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3775
RUEHBJ/AMEMBASSY BEIJING 7055
RUEHUL/AMEMBASSY SEOUL 8786
RUEHGP/AMEMBASSY SINGAPORE 6953
RUEHKO/AMEMBASSY TOKYO 8943
RUEHML/AMEMBASSY MANILA 0111
RUEHJA/AMEMBASSY JAKARTA 4107
RUEHKL/AMEMBASSY KUALA LUMPUR 3787
RUEHHI/AMEMBASSY HANOI 3358
RUEHBY/AMEMBASSY CANBERRA 4568
RUEHWL/AMEMBASSY WELLINGTON 1843
RUEHHK/AMCONSUL HONG KONG 8302
RUEHGH/AMCONSUL SHANGHAI 1246
RUEHGZ/AMCONSUL GUANGZHOU 0423

UNCLAS SECTION 01 OF 02 TAIPEI 001665 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH and Stratford 
USDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA/TTYANG 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN AND NY FRB MARIA 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Taiwan Legislature Passes 2007 Budget 
 
REF:  06 TAIPEI 03199 
 
SUMMARY 
------- 
 
¶1.  In June, Taiwan's legislature passed the 2007 central budget, 
including the first year of funding for military procurement 
programs.  The long delay in budget legislation may act as a drag on 
Taiwan's 2007 economic growth.  According to estimates by economic 
think tanks, however, the rate will remain well above 4%.  END 
SUMMARY. 
 
Long Delay in Budget Legislation 
-------------------------------- 
 
¶2.  Taiwan's Legislative Yuan (LY) passed the 2007 central budget on 
June 15, 197 days behind the legislation deadline of November 30, 
2006 set by Taiwan's Budget Law.  The Directorate General of Budget, 
Accounting and Statistics (DGBAS) believes the delay has led to a 
decline in public expenditure of NT$14 billion (US$424 million) in 
the first quarter (Q1) and another decline of NT$9.3 billion (US$281 
million) in Q2. 
 
¶3.  The DGBAS estimates that the budget delay will cause a 0.25-0.3 
percentage point decline in Taiwan's 2007 real GDP growth, because 
major public construction projects lack funding.  Nevertheless, 
major local economic think tanks believe that Taiwan's economic 
growth for this year will remain well above four percent. 
 
Budget Cuts and Freezes 
----------------------- 
 
¶4.  The LY cut 2.1% in funding proposed by the Executive Yuan (EY) 
for 2007 administrative programs.  The 2007 cuts included a 40% 
slash in special allowances for the President, a 20% slash in 
information technology equipment procurement, and an 18% cut in 
outsourcing funding. 
 
¶5.  The LY also froze 3.7% of the approved funding for the central 
authorities, which will not be released until the EY meets the 
LY-set requirements.  One quarter of funding for the Central 
Election Commission (CEC) will not be available for CEC usage until 
the CEC is reorganized with a composition of CEC commissioners 
acceptable to the opposition Koumintang (KMT) and People First Party 
(PFP). 
 
2007 Privatization Program Stalled 
---------------------------------- 
 
¶6.  At the insistence of the opposition KMT and PFP, the LY 
eliminated the 2007 privatization program by cutting NT$20.1 billion 
(US$609 million) from sales of equity shares in state-owned 
enterprises.  Under the 2007 privatization program, the Ministry of 
Economic Affairs will release equity shares in the Taiwan Salt 
Company (TSC) and the United Microelectronics Company, and the 
Ministry of Finance will sell equity shares in the Taiwan Tobacco 
and Liquor Corporation (TTLC).  Both TSC and TTLC are 100-percent 
owned by Taiwan authorities. 
 
Military Procurement Funding 
---------------------------- 
 
¶7.  Three years after the KMT and PFP totally blocked the special 
budget for three military procurement programs, the EY included the 
first year of funding for these three programs in the 2007 regular 
budget proposal.  The LY approved the 2007 military procurement, but 
cut 60% of the required funding to NT$9.9 billion (US$300 million). 
 
TAIPEI 00001665  002 OF 002 
 
 
The LY did not cut funding for two programs, including NT$6.1 
billion (US$184.8 million) for P3C anti-submarine aircraft and 
NT$3.6 billion (US$109 million) for Patriot II upgrades.  However, 
the LY totally cut NT$11.3 billion for Patriot III missiles.  The LY 
cut 95% of NT$4.5 billion (US$136 million) for submarines, with the 
remaining 5% to finance assessment of the submarine procurement. 
 
YOUNG