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Asian Governments: Debt & Taxation

There’s a piece in Nikkei Asia about how Asian governments—for a very long time—believed in lean, decentralized governments. For a country to run, they believed they needed to create an environment where private sector investments and regional governments would step up, but the central government would play a very limited role. In fact, Asian governments considered westernized governments—where the state played a big role—to be outdated, lethargic and not competitive enough for the long term.

With COVID, the role of Asian governments has started to shift. COVID has forced governments to shatter any illusions they once held. Most Asian governments believed that if they took on too much debt, they would suffer. But COVID gave them no choice—they had to take on debt. Now these Asian governments have realized they’re not suffering, the investment community is not punishing their bonds, and they’re not experiencing credit rating downgrades. By taking on more debt that is being used effectively to bolster their capitalist system, the investment community is actually rewarding them.

This is encouraging many Asian governments to take on more debt. Previously, federal governments—or national governments—would mainly focus on things like health care and defense. But now governments are moving into areas like providing retirement planning, insurance, financial services and universal health care systems. People are going to like these things, but it costs money. We’re going to see a lot of Asian governments—that hadn’t previously relied on a budget built on a large middle class—creating policies to develop a large middle class. But the goal is to tax them. Over the next 15-20 years, we’re going to see a lot of policies, procedures, and potential consulting studies to build these middle classes but also to create mechanisms to tax them.

How do you link these things together and find these insights? We have a program called “How to Develop Big Insights,” which is available for Insiders on strategytraining.com. In this program, I lay out the exact mechanics of the process I use, which you can apply to any problem anywhere in the world. The key is to realize that all change plays out over years. If you’re in consulting, government or business, you know that big events cause trends. You have to see where the trend is going.

Asian governments take on debt—they either default or they pay it off. If they get comfortable taking on debt and they build mechanisms to take on more, they need a way to pay it off responsibly. The only way to do that is to build a middle class and tax them. It’s not difficult to see that, but you have to build this methodology and thought process to do it.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #7.

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