Taiwan: Budget Deadlock and Political Confrontation

Since last autumn, tensions between Taiwan’s executive and legislative branches have once again intensified. The dispute should be attributed to the fundamental disagreement over the 2026 budget, since both parties’ approaches to forming it diverge drastically.

Origins of the Conflict

Attempts by the DPP to redress this imbalance, making use of prosecutorial investigations and recall campaigns against opposition lawmakers, have failed. In these circumstances, the processes of drafting and approving of the key document, the 2026 budget, have become the central battleground in Taiwan’s political standoff.

Competing Priorities: DPP and KMT on the 2026 budget

The Democratic Progressive Party prioritises defence and security when it comes to public spending. It comes as no surprise, given Beijing’s uncompromising stance on Taiwan aspiring for international recognition. Official Taipei openly rejects the “One China” principle, while mainland China maintains legislation providing for a “non-peaceful solution” to the Taiwan issue.

Recurring references to this law by the Chinese leadership and conspicuous military exercises by the People’s Liberation Army of China (PLA) in the vicinity of the island pave the way for Taiwan to strengthen its defence sector. The guiding principle of this Taiwan strategy is the “porcupine” concept, which nobody wishes to “eat” – an idea formulated back in 2020 by United States National Security Adviser Robert O’Brien.

Despite statements about defence spending having a positive impact on the economy, such expenditure invariably diverts resources from other vital areas. The share of defence spending in Taiwan’s budget is steadily increasing, and in the 2026 draft, it is planned to reach the level of 3.3 per cent. President Lai Ching-te has also promised Donald Trump to increase this figure to 5 per cent by 2030, having requested an additional defence budget of 40 billion dollars for the upcoming seven years.

It is precisely the Democratic Progressive Party’s readiness to sacrifice the population’s primary needs for the sake of the “porcupine” concept that has become a stumbling block in its relations with the Kuomintang. The latter, together with the Taiwan People’s Party, has already ten times blocked attempts to adopt a “defence-oriented” budget. In turn, the opposition has proposed its own draft budget, placing emphasis on financing the social sphere, which, however, did not satisfy the executive authorities.

Protracting the budget in Taiwan: political manoeuvres and the foreign policy background

Further delays in the adoption of the new budget in Taiwan threaten to paralyse the functioning of the island’s key structures. An attempt by President Lai Ching-te in mid-December to organise negotiations between representatives of the Democratic Progressive Party and the Kuomintang, aimed at preventing such a scenario, came to no result. The new leader of the Kuomintang, Cheng Li-wen, stated that the President “himself closed the window of opportunity” for dialogue, at the very least by not obstructing the recall campaign against Kuomintang parliamentarians initiated by his party.

The foreign policy context of the escalation of the situation in Taiwan

The People’s Republic of China is actively developing contacts with the Kuomintang, utterly refusing to engage in any dialogue with Taiwan’s executive authorities, whom Beijing considers “separatist” because of their affiliation with the Democratic Progressive Party. It is worth recalling that the Kuomintang once signed with the Communist Party of China the “1992 Consensus”, recognising the “One China” principle. This principle corresponds to the ideas of one of the founders of modern China, Sun Yat-sen, and his successor Chiang Kai-shek, who led the Kuomintang. Notably, today the memory of Chiang Kai-shek is subject to criticism from the Democratic Progressive Party and, at the same time, defended by the People’s Republic of China, which would have been difficult to imagine two or three decades ago.

However, the Kuomintang has always had its own vision of both the “One China” principle per se and the prospects for its practical implementation. The President of Taiwan from the Kuomintang during the 2008 – 2016 period, Ma Ying-jeou, to put it mildly, did not contribute to bringing that prospect closer. His foreign policy course was defined by the following formula: “Maintain peace with China, friendship with Japan, and closeness to the United States.” Despite this, the former President Ma Ying-jeou was received in Beijing by the leader of the People’s Republic of China, Xi Jinping, twice. There is an opinion that the first half of 2026 may also be marked by the visit of Cheng Li-wen to China. In early February, a Kuomintang delegation already visited the PRC, where it was received by one of the members of the Politburo Standing Committee of the Chinese Communist Party.

Cheng Li-wun’s visit to the United States and defence budgets

Cheng Li-wun herself plans to visit the United States. There she will likely face uncomfortable questions regarding the “sabotage” of adopting Taiwan’s new budget. The leadership of the American military-industrial complex is already eagerly awaiting new large-scale orders for arms envisaged both by this budget and by the additional defence budget. American congressmen are currently voicing their dissatisfaction with the behaviour of the Taiwanese opposition regarding the issue.

Anticipating possible claims voiced in the United States, Cheng Li-wun emphasises that US–Taiwan relations “cannot be reduced to the sphere of arms supplies.” It is also thought that the problems with the adoption of Taiwan’s budget may come in handy for the President of the United States, who is in need of a favourable atmosphere on the eve of his planned visit to the People’s Republic of China.

Japan and Europe in the context of Taiwan policy

As for Japan, mentioned in Ma Ying-jeou’s formula, the continuous development of Taiwan’s relations with that country deserves separate consideration. Let us take a quick look at Europe. It was not mentioned by the former President, since Europe’s increased involvement in the Taiwan issue is a relatively recent process, which manifested itself noticeably later than this foreign policy formula had been formed. The current deterioration of relations with Washington is prompting Europeans to seek contacts with alternative centres of power, above all with Beijing, and in this regard, the process of support for Taiwan is to be inevitably slowed down.

In the conditions of rapid change, the vanguard of the Europeans, represented by the Baltic states, has wound up in a tight corner. Previously, they allowed themselves to ignore Beijing’s warnings regarding activity in Taiwan. Today, especially in the wake of Lithuania’s self-assured position, calls for reconciliation with China are being heard. As reported by Global Times, Lithuania has appealed to Chairman Xi with a request for forgiveness, acknowledging its mistake. The Taiwan question, which remains one of the key issues at the current stage of the global geopolitical game, is acquiring a highly specific and, probably, unforeseen transformation.

Vladimir Terekhov, expert on Asia-Pacific issues

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