Fiji’s budget

By Roman Grynbcrg

FIJI’S 1994 budget will in future almost certainly be seen as a water-shed in the history of the country. It will be seen as the point at which it became clear that Fiji was not going to consolidate gains made towards inter national competitiveness following the military coups of 1987. In the wake of those events Fiji introduced the tax free factory system deregulated the labour market and most importantly devalued the Fiji dollar by what was then effectively 50 per cent. At the same time the government introduced a series of

virtually balanced budgets. Towards

the end of the interim administration, beginning in 1990, the Fiji government lost its zeal for economic reform and the results are beginning to appear.

The budget presented by Finance Minister Paul Manueli to parliament had some very rude shocks for Fiji. The most important was the fact that the deficit had blown out massively from the projected 2.5 per cent of GDP in the 1993 budget speech to an estimated 4.8 per cent of GDP. Even following the increase in tariffs, which are projected to bring in $15.7 million, the 1994 budget was expected to only decrease the deficit to 3.7 per cent of GDP. The 1993 deficit will be the largest by far since the coups in 1987.

Economic growth for 1993 is projected to be 1.8 per cent in real terms, which means the economy is virtually standing still in real per capita terms.

The huge budget deficit was explained by four factors. First the effects of Cyclone Kina effectively increased government emergency and reconstruction spending while it simultaneously decreased rev enues. This was also accompanied by a blow-out of spending, caused in no small measure by lack of control of spending of the Fiji military forces. Manueli an nounced that tne government of Fiji intended to cut size of the army to that existing in 1987 by 1996 and would decrease the army’s staffby 1332 from the current level of 3910. This would bring numbers down precisely to that which existed on May 14, 1987.

The third factor for the deficit blow-out was the failure of Fiji’s recently intro duced 10 per cent VAT to generate revenues as projected. In the total shortfall to September 1993 was $l4 million or some 13 per cent of the projected revenue. The government also promised to review the generally unpopu ar tax in 1994. However, given the predisposition of government officials and the Finance Minister towards the tax it is widely believed that the review will be ‘pro-forma’.

The government also blamed the

budget blow-out on the arbitration award that was made for public servants. This granted them a five per cent pay increase which was one per cent greater than what the 1993 budget was based upon. The minister also announced that the wage increase for public servants would be thre per cent in 1994 and hinted at the introduction of a public service wage system based upon productivity.

Despite widespread speculation the

government did not raise either direct taxes or VAT to finance the budget blow out but rather chose to raise import duties on petrol(2c) and cars ($500) while raising the usual range of ‘sin taxes’ on

beer(up 10c per litre) and cigarettes(s6/

k g)- The government did pursue its policy of eliminating import licensing and changing the licences into tariffs. This is what is called ‘tariffication’ in GATT lexicon. In order to force competition on the fish canning, rice, and dairy industry the government introduced tariffs of 50 per cent on powdered milk and 40 per cent on rice. The government has indi cated that it intends to become a member of GATT and the tariffication of import licences would have been necessary for compliance with GATT rules.

Government did announce measures that liberalised access to foreign exchange including the increase in the travel allowance to $6,000 from $4,000 and permitting exporting firms to retain 10 per cent (ratner than 5 per cent pre

viously) of their foreign exchange earn

ings to pay for imports.

In general the government showed no major new initiatives in the budget though it did announce its intention to create a fund for future generations for revenue from the up-coming copper mine at Namosi. The $2 billion mine is expected to generate substantial revenues and the government intends to take the funds off-shore and utilise earnings from the fund rather than using the funds themselves. The minister prefixed his commitment to the fund with the usual budget rider that started with ‘one possible option’. This means that it will not be difficult for him or his successor to change their minds in future.

The slow pace of economic reform, especially in crucial areas like the Fiji capital market has led many to conclude that Fiji government is no longer commit ted to the process of economic reform begun following the coups. Meanwhile the country’s two main export sectors garments and sugar are facing difficulties resulting in no small part from a loss of competitiveness. The Fiji dollar has appreciated 15 per cent in real terms since the coups and the competitiveness estab lished then is being gradually eroded.

There were no measures announced in this budget to increase competitiveness in either sector. □