05 October 2021
Taiwan progresses ‘special’ funding plan as relations with Beijing deteriorate
by Jon Grevatt and Andrew MacDonald
Jon Grevatt, principal at Janes takes a look at the plan to allocate TWD240 billion to enhance sea and air combat capability
Taiwan’s Ministry of National Defense (MND) has advanced its plan to allocate TWD240 billion (USD8.6 billion) in additional military funding to enhance the island’s sea and air combat capability. The MND submitted its funding plan for approval to the island’s Legislative Yuan on 4 October. The proposal was approved by Taiwan’s Executive Yuan in September.
The funding plan was submitted on the same day that the MND announced that nearly 150 People's Liberation Army (PLA) aircraft had been deployed near Taiwan since 1 October: the date Beijing celebrated the 72nd anniversary of the founding of the People's Republic of China.
The funding proposal – contained in ‘regulations on the procurement of sea and air combat power enhancement’ – appropriates the funding over five years. The allocation is in addition to Taiwan’s annual defense budget. The new proposal outlines a plan to procure unmanned combat aerial vehicles (UCAVs), ground-based anti-ship missiles, a ground-based air defense system, naval vessels, and “other urgently needed systems”.
According to the regulation, the funding will also enable the procurement of locally developed Wan Chien (Ten Thousand Swords) stand-off air-to-surface missiles and Hsiung Feng IIE (‘Brave Wind': HF IIE) surface-to-surface cruise missiles.
In its new submission, the MND said the funding is required “in response to Chinese threats and the need to urgently strengthen self-defense”. It said the procured capabilities will help ensure “the security of Taiwan and stability in the Asia-Pacific region”.
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Special funding will take up a quarter of Taiwan’s defense expenditure - Andrew MacDonald, lead Asia-Pacific budgets analyst at Janes explores
Taiwan’s new military funding law is the second announced in recent years to allocate financing from outside the core defense budget. In 2020, the Taiwan government approved a similar ‘special’ expenditure to support the procurement of Lockheed Martin F-16 fighter aircraft from the US government.
Assuming equal allocations across the new law’s lifetime to 2026 (although in reality such even disbursement is unlikely), the fund’s annual value would be equal to almost 13% of Taiwan’s annual core defense spend in 2022, and taken together with spending on the F-16 procurement, total special budget funding would reach just under 24% of the official budget.
Funding for the F-16 purchase, although distributed at a relatively even pace from 2022 onwards was phased in gradually; from TWD5 billion in 2020 it increased to TWD29 billion this year. 2022’s allocation is due to rise to TWD40 billion before reaching an annual peak of TWD45 billion in 2023 and 2024 and tapering to TWD43 billion and TWD39 billion in its final years.
Although the funding schedule of the new legislation is yet to be published, in total these special allocations will have added TWD487 billion to Taiwan’s military spend from 2020-2026. That’s equivalent to 1.3 times the current annual core defense allocation.
The additional funds are likely to push Taiwan’s total defense budget for next year, which remains in the draft stage, to more than TWD502 billion, or TWD718 billion if veterans’ affairs costs are included.
Taking this more inclusive view of Taiwan’s total military spend, intelligence from Janes indicates that 2022 will now see the annual allocation rise by nearly TWD78 billion year-on-year, or more than 10.8%. That would be the fastest rate of annual budget growth since 2008 and far in excess of the average rate over the past 10 years of just 0.5% in real terms.
Assuming the budget is passed in its current form, 2022 will see Taiwan’s annual defense spend increase by significantly more in one year than it did across the entire decade to 2020.
Although this undoubtedly marks a notable shift in Taiwan’s pace of defence budget growth, the beginnings of such efforts can be seen as far back as 2019, when total funding increased by 6% in real terms, marking the start of a period of elevated growth rates, despite the negative impact of the Covid-19 pandemic.
However, with so much of this momentum built by funding external to the MND’s regular budget, annual expansion is set to fall back to nominal rates between 2% and 3% from 2023. Further, with both sets of special funding due to end in 2026, 2027 looks likely to record a significant drop in budget of close to 7% nominally.
Having peaked the year before at a record level of more than TWD800 billion, total funding in 2027 is forecast to drop back nearly to TWD745 billion. Despite the ending of both batches of external funds, this level of spending will remain almost a third larger than Taiwan’s total allocation in 2019, before either law was enacted, while core MND budgets are expected to have risen even faster, reaching TWD470 billion nominally.
If additional equivalent tranches of ‘special expenditure’ are approved to avoid this drop-off as the current batches expire, Taiwan’s defence spend would instead be likely to approach TWD900 billion by 2030 – more than USD30 billion in nominal terms.
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Taiwan’s Ministry of National Defense (MND) has advanced its plan to allocate TWD240 billion (USD8.6...
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