China Power | Politics | East Asia

Taiwan Finally Passed Its 2026 Budget. What Got Cut?

The budget was passed almost 9 months late, amid growing concern that defense spending was being held up – especially funding for drones. 

After many months of contention over Taiwan’s government spending, the pan-Blue camp seemed to finally relent on August 14. The budget was finally passed on that day – 266 days past the deadline, and almost one year after the Executive Yuan originally submitted the budget for consideration on August 29, 2025.

The eventual passage of the budget occurred amid growing concern that defense spending was being held up – especially funding for drones. 

The Kuomintang (KMT) – which currently holds the majority in the legislature along with its third-party ally, the Taiwan People’s Party (TPP) – had previously suggested that it would cut funding or impose funding freezes on drone spending, alleging that the Democratic Progressive Party (DPP) was using the drone industry to funnel money to untested companies and line its pockets. Reports at the time in pan-Green media outlets also suggested that China hoped to see drone spending blocked and had directed United Front Work Departments to coordinate to influence public opinion in Taiwan. 

However, the KMT seemed to suddenly reverse course after an article in The Economist accused the party of failing to protect Taiwan’s democracy out of the political selfishness of its politicians.

Still, the budget that was passed had substantial cuts, including with regard to drone spending. The cuts amounted to 1.7 percent of the Executive Yuan’s original budget, which KMT legislative caucus leader Fu Kun-chi framed as a generous gesture. By comparison, in 2025, when the KMT instituted the largest set of budget cuts in Taiwanese political history – freezing or cutting one-third of the government’s operational expenses – this was around 3 percent of the proposed budget. 

When it comes to drone funding, the Lai administration originally intended to pass a special budget of NT$210 billion (US$6.6 billion) that would have been used to purchase 1,446 coastal reconnaissance drones, 208,200 coastal attack drones, and 1,320 unmanned surface vessels. The budget would have run from August 2026 through the end of 2031, with spending of NT$42.1 billion per year. Importantly, that would have come on top of NT$31 billion budgeted by the military for unmanned systems as part of its existing budget. 

The budget passed by the KMT allocated NT$240 billion in funding for all purchases of unmanned systems, which will be under the budget for the central government rather than as a separate special budget. Spending would be limited to a cap of NT$40 billion per year, which would be subject to regulatory approval. In other words, the KMT has reduced the budget for military spending on drones from around NT$73 billion a year to NT$40 billion – a 45 percent reduction.

The KMT intends to exert control over the process for drone development through annual approval. Industry experts have warned that this could be detrimental for the long-term development of Taiwan’s drone industry. Building up domestic drone capacity usually requires an initial injection of capital that then tapers off, rather than the same amount of funding year after year. Likewise, drone companies will have to face uncertainty, as the KMT could deny approval for funding in subsequent cycles. 

Some reports suggest that the Executive Yuan will accept the reduced drone budget nonetheless, although it is possible that it may still attempt to fight for additional funding. 

The KMT has sought to deny funding to defense initiatives undertaken by the Tsai and Lai administrations, claiming that effectiveness has not yet been proven. Beyond drones, under the current budget, the KMT has moved to freeze NT$11.9 billion in funding for Taiwan’s domestic submarine program – for the completion of a planned fleet of seven submarines – until after testing for the first submarine of the fleet, the Hai Kun. 

Besides defense programs, the new budget brings other cuts. All media and publicity budgets were slashed by half, while all special operational expenses were but by 60 percent. It is expected that cuts to........

© The Diplomat