An Exposition of the Administration of National Treasury
The National Treasury Agency is responsible for the revenues and expenditures of the National Treasury and the administration of relevant affairs. It also handles related businesses regarding tobacco and liquor administration, the public welfare lottery and the administration of government shareholdings. It plays an important and active role in the implementation of national fiscal policies. The well being of the government’s finance is vital to the overall economic development of the nation. In recent years the actual revenues of the government have been affected by changes in the economy and various tax-cuts and exemption measures, causing its growth rate to be smaller than that of expenditures. Yet, in order to revive the economy, promote the upgrading of industry and at the same time improve the well being of the people, the government has still strived to overcome all such difficulties to raise funds and actively pushed ahead various major public construction projects and initiated various welfare measures. The functions of the National Treasury Affairs are as follows :
- To implement national fiscal policies and maintain a balanced budget.
- To raise construction funds to meet the needs of national economic development.
- To regulate pubic treasury systems and supervise treasury administration at all levels of government.
- To adjust revenues and expenditures and secure economic stability via government debt policy.
- To allocate government revenues and expenditures in a reasonable manner among all levels of government and to assist in the financing of local governments.
- To supervise the management and utilization of the issuance of public welfare lottery.
- To strengthen and enhance efficiency in the administration of tobacco and liquor affairs.
- To carry out the administration of government shareholdings, enhance efficiency in the utilization of national assets, and improve the efficacy of government finance.
- To strengthen the centralized disbursement management, and to ensure secure and convenient disbursement.
The tobacco and liquor administration, public welfare lottery and the supervision of government shareholdings are introduced in the topics in "Tobacco and liquor administration and the issuance of public welfare lottery" and "the Supervision of state-owned enterprises and government shareholding management", for other remaining relevant affairs in charged of by The National Treasury Agency are listed under this topic. Under the main goal to enforce national fiscal policies and maintain a balanced budget, The National Treasury Agency has to raise various government revenue .Besides tax revenue, the surplus from state-owned enterprises, the profit from government investment and various executive revenues, the issuance of government bonds is also a major measure to raise government revenue. The development process of the issuance of government bond is as follows:
The Issuance of Government Bond
I.The History of Government Bonds Issurance
After the Sino-Japanese War of 1894-1895, the Ching Government could not afford the reparations asked by the Japanese. Hence, the "Zhao Xin Bonds"were issued, and the "Zhao Xin Agency" was created under the Ministry of Revenue. Branches were set up in every places to promote the sale of public bonds. The maturity of the bond was 20 years with an interest rate of 5% per annum, excluding the intercalary month.
The principal and interest of the bond could either be counted as the tax due or as cash receivable. However, after the Zhao Xin Bonds were issued, it soon became a way for the local officials to collect money from the people, worst of all, people even considered it as a step to buy a position in the government. Eventually, it was cancelled due to the complaint of the people.
Before the founding of the Republic of China, Dr. Sun Yet-Sen had also issued the Revolutionary Army bond, Munitions bond, Chinese Civil Xin Li Company bond and Chinese Revolutionary bond in order to raise funds from the overseas Chinese for the revolution.
After the Republic was established, the new government issued the Republic of China Munitions Bond in the amount of 100,000,000 Chinese dollars, with annual interest rate of 8%. Before 1933, most of the bonds were issued for military use and the maintenance of government administration. Between 1934 and 1936, bonds were used for the development of railroad, economy and public welfare.
During the war, the bond was mot only important for the government finance, but also a symbol of the national morale. In September 1937, the government issued the "National Salvation Bond", and then the "Allied Victory Bond" in May 1942. In August 1949, there was also the "The 38th Years of the Republic of China Patriot Bond". With those different names, we could perceive easier the background of those early years.
After the government moved to Taiwan, short-term bonds with maturity from 14 months to 3 years were again issued between 1959 and 1962. From 1963 to 1973, the bonds were changed to annual bonds with maturity from 3 to 6 years. From 1966 to 1968, additional annual Patriot Bonds were issued.
From 1971 to 1974, there was the "First phase project Construction Bond of the Central Government for the Development of Taiwan Highways" the issuance amount was NT 1,500 million. According to the "Central Government Development Bonds and Loans Act" from 1975,the government bonds was renamed as central government development bond with maturity of 5 to 7 years. For example, the annual expenditure and the issuance amount of Central government bond was NT 423,000 million and NT 41,500 million as of 1987, respectively. The ratio of government bond to expenditure was 9.81%.
II. The Development of Government Bonds Issurance
The bonds hvee been issued through public tender since November 1993. Up to the present,2-year, 5-year,10-year,20-year and 30-year central government bonds have been issued via auction according to a pre-announced annual calendar, so that the substantial interest rate will be close to the market interest rate. Therefore, the short-term, medium-term and long-term yield curve of the capital market will be established. To follow the trend and overcome the challenges that globalized markets brought, it is critical to establish a competitive bond market. Recently, issuance system in Taiwan has gone through quite a few transformations as follow:
1.Periodical & Proper Amount Issuance of Government Bond
In order to construct the yield curve for bond market, the Ministry of Finance continues to promote the regular issuance of government bond. A “two-stage announcement” approach has been adopted since the end of 2002, with public, certain, transparent pre-announced issuance calendar, enables a more stable and efficient bond market. The first stage is to announce the issuance tenors of each month for the coming year. The second stage is to announce detailed information seasonally for the next quarter (three months), such as the issue amount, auction date, and issue date,etc. It makes government bond-issuance predictable, expectable, and convenient for investors to arrange investment plans.
2.Electronic bidding and opening operation
To prove operation efficiency, starting on March 1 of 2001 with issue of A90103, all the bidding on central government development bonds are shifted to electronic bidding system.
3.Issuing Reopen Bond
To increase the liquidity of government bonds and to solve excessively fast notation of benchmark bonds, the Ministry of Finance has adopted the “reopen” measure to reopen benchmark bonds 3 or 6 months after initial issuing to extend the lively liquidity since April 15 , 2003.
4.Establish a communication channel with the market
The MOF has conducted a conference by inviting bond related agencies and primary dealers every December to pinpoint the suggestions of surveys and critical issues and to establish a communication channel with the market since 2003,. Therefore the result will be taken as a reference for issuance plan next year.
5.Diversifying Bond Products
In order to develop the principle-guaranteed products, complete the treasury yield curve and provide more investment channels for individual investors, the Ministry of Finance first issued on July 20 2005 the 5-year strippable bonds, with fixed p.a. coupon rate at 2% and annual issue date. The primary dealers or securities dealers who hold the strippable bonds may apply to strip or restructure them.
6.Buy-back of Government Bonds
For the purpose of adjusting the maturity structure of the central government debt and enhancing the debt management , the MOF bought back Government bonds “2006 A1” and “2006 A5” on November 4, 2010 for the first time, for total amount of NT$ 2 billion. The buy-back system will enhance investors’ willingness for future investments in Government Bonds and promote the development of the bond market.
To establish a sound bond market, the issuance system of Taiwan’s government bond has been implemented many innovative measures.From now on we will continue to promote issuing regularly with proper size in order to facilitate the liberalization and globalization of the capital market.