tightrope act

PNG budget a tightrope act

PAPUA New Guinea Finance Minister Paul Pora has handed down a K 1250 million budget with only minimal taxation increases. But it seems clear the government is banking on a re-opening of the Bougainville cop per mine, and the hope that it can avoid a deficit.

The budget was revealed just days af ter an official audit showed that 1988 national government deficit as K 52 mil lion, and a senior government official has confirmed this current budget will end in another major shortfall. He said the only way to avoid such a result would be to raise customs revenues and taxes or by borrowing more overseas.

Pora apparently told his cabinet col leagues back in September that his budget plans were based on an early re sumption of work at Bougainville the mine (before its closure in May after re bel attacks) contributed 30 per cent of the country’s export earnings and 11 per cent of gross domestic product. Pora told the cabinet that if the mine remained closed indefinitely, the government would be forced into a major reassess ment of its spending forecasts.

But the government faces other con straints, including the chances that Au stralia could cut its budget support in real terms as that country faces its own economic crisis. Cocoa and coffee prices remain low.

With private predictions of a deficit next year of at least Kll7 million, Pora’s latest budget must be viewed as some thing of a high wire act without the safe ty net.

The only tax increases in the budget are slight rises on beer, cigarettes, spirits, wines, soft drinks and diesel, about KB.B million in all. Pora said the government had seen revenues rise due to the im proved efficiency of taxation collection as well as duty on increased imports.

One of the more controversial aspects of the budget was the doubling of the parliamentarians’ slush fund to K 100,000. This is officially called the “unaccountable fund” because members can do with it as they please.

Pora said the government was looking to increased tax revenue from the min ing sector to encourage investment and growth in the non-mining sectors so that Papua New Guinea could move beyond its traditional and unsustainable reliance on a very narrow tax base concentrated in the formal sector of the economy.

Contractors and landowners who receive income from mining projects will be targetted; most small contractors and sub-contractors do not presently furnish

a tax return, so the 1989 budget intro duces a 17 per cent withholding tax.

There will also be a five per cent with holding tax on mining, oil and fishing royalties paid to landowners.

The Port Moresby newspaper Post- Courier commented that the 1990 budget “tests Papua New Guinea’s re venue collection machinery to the ful lest.” The few initiatives to raise extra revenue collection machinery to the ful lest.” The few initiatives to raise extra revenue would mean the government is

depending on increasing the efficiency

of the taxation system. Commentators have also pointed to plans for the Cen tral Bank to pay all its K5O million profit to the government in the form of a di vidend. The government will also draw KBO million from the Mineral Resources Stabilisation Fund.

But cuts have been made in certain areas. Infrastructure spending is down Kl 3 million to K 196 million, but still re

mains the single biggest budget item.

One programme which remains intact is the K 64 million to be spent on road

building, including the sealing of the

Magi Highway in Central Province and further work on the Enga Highway.

Provincial governments will get more money under the budget, with Pora saying the rises will help local health and education services. The biggest increases have gone to Western Highlands, Simbu and Eastern Highlands provinces, while

funding has been cut in East Sepik and North Solomons.

At this stage, the Papua New Guinea government will not seek commercial overseas loans to fund the 1990 budget.

Instead, it has allocated K 254 million to repay part of the country’s massive K 1.2 billion foreign debt. The repayments are aimed at maintaining the nation’s good credit rating when estimates are that more than K 6 billion will need to be found to finance future mineral develop ment.

The KBO million drawdown from the Mineral Resources Stabilisation Fund will make up for lost Bougainville revenues for a few months, but this plan is all built on the government’s hope the cop per mine will resume production at the start of 1990 a pretence which the company itself no longer maintains. Fai lure to get the mine back into produc tion will result in a gigantic drain on Papua New Guinea’s foreign exchange reserves in 1990. Coopers and Lybrand’s Bob Prosser said this would affect the confidence of much-needed foreign in vestors. Prosser said the real disappoint ment in the budget was the failure to reduce expenditure instead govern ment spending would rise by five per cent.

Pora told his colleagues back in September that the 1990 budget would be the most difficult since independence.

The government is caught with the pros

pect of further raiding the minerals Fund; it cannot borrow abroad for fear that it would then not be able to raise further loans to finance its commitments as a shareholder in the major mining ventures at Porgera, Hidden Valley and Lihir; finally, it has turned its back on either substantial tax rises or slashing its own spending. A great deal has to go right this financial year for the Namaliu government to make the budget predic tions stick.

Opposition economic spokesman Sir

Julius Chan told Parliament the budget

was “pinned together with panic and

madness”. He said the document was based on a false premise the re opening of the Bougainville copper mine. There was no contingency plan, said Sir Julius. □ Fiji hotel warning FIJI’S permanent secretary for Tourism, Robin Yarrow, has warned the country’s hoteliers to remain competitive and not over-price room rates and other services.

He said no increase should exceed six per cent. Yarrow said Fiji had to remain competitive with other regional tourist destinations such as Bali, Vanuatu, New Caledonia and French Polynesia.

Mt Kasi work resumes

TWO Australian mining companies,

Newmont Pty Ltd and Range Resources Ltd, have applied for the re establishment of a prospecting licence at Mt Kasi, on Fiji’s second largest island of Vanua Levu. The companies are confi dent of finding more gold occurrences at the prospect, known as SPL 1152. The area was mined in the 1940 s and the new exploration work has concentrated on finding gold which can be extracted

by open-pit methods.

PNG mining under scrutiny PAPUA New Guinea’s parliament has set up a permanent committee to oversee mining operations, and it will play a part in negotiations over royalty payments to landowners. The committee’s work will also include monitoring the conditions under which nationals are employed by

mining companies, and to investigate en

vironmental safeguards and effects.

KAL expands to Saipan KOREAN Airlines has inaugurated a

twice-weekly Seoul-Saipan service using a

Boeing 727 airliner. The service will be a non-stop one, compared to Air Mic ronesia and Northwest Airlines which operate between the two destinations via stopovers in Japan. The flights are ex pected to be heavily patronised now that South Korea has removed travel restric tions, with its citizens free to spend more time as tourists abroad.

More funds for oil PAPUA New Guinea resource explorer Oil Search Ltd is to raise another K 37 million as it prepares to go into oil and gas production, with its five per cent share of the Hides field and involvement in the lagifu-Hedinia area. To fund its share of both projects, the company is making a rights issue to all shareholders, including those in Papua New Guinea.

The new shares will cost 44 toea or 65 Australian cents.

Emperor production up EMPEROR Mines Ltd reported to the Australian Stock Exchange that during the September quarter it extracted 40,327 ounces of gold from its Fiji op erations at Vatukoula and Tavua Basin joint ventures with Western Mining Cor

poration Holdings Ltd. This compared

with 32,086 ounces in the previous September quarter. Emperor said it had repaired and reactivated one of its pump stands in the Vatukoula mine.

Pest hits Fiji mango MORE than five tonnes of mango ship ments from Fiji was destroyed in Austra lia because of pest infection. The mango stone weevil was found in some consign ments, and this led to a temporary ban on more shipments. Fiji exports more than 150 tonnes of mangoes a year.

Fiji’s trade deficit IMPORTS of machinery for the new tax-free zones has been blamed for Fiji’s trade deficit for the first nine months of 1989 which soared by 88.8 per cent to F 5312.5 million. The Bureau of Statistics said the increased current account deficit was largely due to the tax-free zones scheme which allow foreign firms to im port machinery and equipment without normal duties.

Kiribati air link hope AIR Tungaru hopes to have its jet ser vice linking Hawaii, Christmas Island, Tarawa and Fiji by the end of Decem ber. What the Kiribati carrier needs now is final United States Federal Aviation Administration approval. The company will charter an Aloha Airlines Boeing 737 and the improvements to the run way at Canton Island have been made.

The Americans required the upgrading to make it an alternative landing strip between Christmas Island and Tarawa when a twin-engined aircraft was being operated over such a long stretch of water.

Bank abolishes passbooks THE traditional passbook used in sav ings accounts has been abolished by the American Samoa Bank in Pago Pago.

The main reason for the change was that many American Samoans made deposits and withdrwals without using their books, relying instead on their familiarity with bank staff to establish their identity.

This had led to constant criticism from the bank’s external auditors about the discrepencies between bank records and what was shown in passbooks.

Oil tenders rejected FIJI’S Energy Minister David Pickering said all five tenders for processing crude oil imported from Indonesia had been rejected after they failed to meet the re quirements of the newly-formed Fiji Oil Company. Tenderers included the three oil companies operating in the country Mobil, Shell and BP.

Manufacturing centre study A PORT Moresby Industrial Centre is being studied by the Papua New Guinea government, in an attempt to increase industrial development in the country. A study is to be carried out to assess how many companies would be interested in locating their plants in the centre.