a forward-looking budget

PNG crystal gazes and plans a forward-looking budget

From GUS SMALES in Port Moresby

Papua New Guinea’s first budget since independence dispels any fears that the new nation might be tempted to squander its five-year guaranteed aid programme from Australia. The budget was brought in the National Parliament in Port Moresby early in August by the Finance Minister, Mr Julius Chan.

It is essentially a budget of restraint, concentrating on some avenues of develop ment which will not reach their full value for several years when Australian aid is likely to be falling off. The Australian aid content in the budget is part of an agree ment in which Australia has undertaken to provide $930 million in budgetary support over the next five years.

This is in strong contrast with the system which existed while Australia was the administering authority in PNG when Australian aid was given only on a year to year basis, and PNG didn’t known what to expect each year until Australia brought down its own budget.

PNG political leaders claimed this gave them no opportunity to undertake long

range, integrated planning.

Mr Chan said the new budgetary system had allowed his country to “escape from a straitjacket” imposed by the rigid rules of the past.

The budget provides for revenue equivalent to $448 million and expenditure equivalent to $457 million. Australia’s contribution to the revenue, as an uncon ditional grant in aid, is $l9O million.

Mr Chan told parliament that for two years the aid relationship had been charged with a certain degree of tension and fric tion, but a long-term satisfactory arrange ment had now been reached. Australia’s agreement to make the money available without direction as to how it should be used was “enlightening and historic”.

The budget makes no structural changes to methods of raising internal revenue, and

does not change existing income tax.

However, it increases some hospital and dental fees, sea and air navigation charges

and liquor licensing fees.

Firearms, ammunition, playing cards,

greeting cards, perfumes and some textiles vill attract higher import duty. There will 56 an increase in the import duty on motor spirit of about 6%, and on aviation fuel of ust over 2%.

Statutory authorities, which operate as

commercial enterprises, such as the national airline and the Bank of PNG will be required to pay dividends to the govern ment.

The budget is expected to have little effect on the personal finances of Papua New Guineans or of Australians living in PNG. It will also have little effect on Australian companies operating in PNG, with one exception.

The exception takes in companies which operate as branches in PNG and have not been incorporated there. Because such branches do not pay dividends to a parent company, they have been avoiding divi dend withholding tax.

Under this budget these companies will be charged a company tax of 45% on their PNG earnings, instead of the standard 33 1/3% company tax applying to com panies incorporated in PNG.

The most significant internal change heralded by the budget is the provision of unconditional grants for planned provin cial governments. Under the scheme out lined by Mr Chan, certain areas of expen diture, particularly in roads and services, will be designated as provincial respon sibilities and full spending authority will rest with provincial governments.

The scheme marks a departure in traditional centralised spending, and is seen in no small measure as one of the results of the secession pressures on

Bougainville.

The new company tax for foreign businesses operating but not incorporated in PNG is designed to collect the equivalent of dividend-withholding tax.

Locally incorporated companies pay

withholding tax at present when they remit dividends to their parent companies, but business firms operating purely as branches have been avoiding such payments.

Although the Australian aid content is heavy, there is no suggestion that PNG is milking Australian sources to finance grandiose spending schemes. There’s a heavy accent on stabilisation-type funds and soundly based development projects and for the first time, 100, there's a plann ed effort in this year's budget to slop the octopus-like growth of the Public Service, once estimated at 10% annually and a

heavy drag on funds.

The Public Service growth figure will come down to 1.4% under the Chan budget, including the net loss of 190 highly paid Australians in specialised jobs.