rolling

Economy

Haiveta gets the ball rolling

Papua New Guinea passes the new budget in trying times and deregulation appears to be the buzz word

It was a case of the pre-match enter tainment outshining the main event.

Papua New Guinea had eagerly antici pated its government’s 1995 Budget, albeit with more than a little trepida tion. But when it came to presenting his first Budget, Finance and Planning Minister Chris Haiveta offered a docu ment with lots of promises but no real radical fiscal reforms.

The bottom line was certainly far more responsible than had been the case in the recent past. The deputy Prime Minister slashed the country’s Budget deficit to K 58.1 million, or one per cent of the Gross Domestic Product (GDP).And, as had been widely urged by Papua New Guinea’s overseas donors most prominently Australia, the International Monetary Fund (IMF) and the World Bank - Haiveta also pledged to tighten the public sector, both in accountability of its spending and num bers of public servants.

The government plans to cut 4500

jobs from the 60,000-strong public ser

vice this year, setting aside Kl 2 million for redundancy payouts in the Budget.

The exercises will cost about K 45 mil lion but Haiveta said the government would be unable to meet the entire expense this year, with parts of the package having to be deferred to later years mostly, through tax concessions to the affected staff.

In terms of managing its own books, Haiveta said the government would

implement new administrative reforms, including “strict” eligibility criteria for MPs’ controversial Electoral Development Funds, the strengthening of the existing monthly expenditure tracking system, widening the use of interests and trust accounts, direct donor payments for concessionally funded projects and the streamlining of the bureaucratic approval process to speed up projects.

The government’s ability to achieve its target deficit will depend heavily on its revenue base. While the deficit was cut back sharply, total outlays will actually rise 4.3 percent from 1994 to 1995. The deficit figure relies on an 8.6 percent increase in total revenues and grants from the actual result in 1984.

Haiveta said the expanded revenue figure would be achieved by broadening the tax base, bringing more people into the tax net. He told parliament major structural and fiscal reforms in expendi ture programmes would “change forever the way government spends money”.

“Through this Budget, we aim to recover lost ground, build on the strengths we have achieved and stop talking about reforms, changes and problems and to make a real start in steering the country back to economic growth, recovery and prosperity,” he said during a lock-up with the press prior to presenting the Budget.

Perhaps the most significant reforms contained in the Budget were moves to

begin the dismantling of protectionist trade barriers. The government is to replace all import bans with various lev els of tariffs, while existing import duty levels will be reviewed. To get the ball rolling, Haiveta announced tariff reduc tions for fresh barracuda fish, fresh milk, baked beans, cement and bridges and bridge sections.

The government will also phase out the controversial reserved business activities list, as well as all price controls over the next two to three years.

“Everyone has to wake up and realise that we ... (must) change our way of thinking ... unless we stop protecting and giving special payouts to our friends ... giving investments over and above others who have invested millions of kina, have lived in this country, have been good corporate citizens, have paid their taxes and have developed their industries without a single iota of help from government ...We should be free ing up these sectors,” Haiveta told jour nalists.

“Bans and quotas usually mean less competitiveness in quality and prices of products,” Chamber of Manufacturers president Wayne Golding told the Post- Courier newspaper.

“We have to be more cost competitive in the global world and our member ship to APEC (Asia Pacific Economic Co operation) and WTC (World Trade Organisation) forces us anyway to lift bans and quotas by the end of 1996.”

While the figures suggest an improved fiscal offering for 1993, Papua New Guinea will face a tough line economi cally.

GDP is expected to fall 5.4 per cent in 1995, mainly as a result of poorer con tributions from the mining and petrole um sectors, which will fall 18.2 percent and 29.4 percent respectively as major resource projects leave peak production behind them. The slide in just two years has been significant, with a growth rate of 16.6 per cent in 1993 and a revised figure of 2.3 percent in 1994.

Non-mining sectors will perform bet ter, with total non-mining GDP set to rise 2.0 percent. Nevertheless, the result is still below the revised 1994 figure of 5.1 percent.

Consumers also face further price hikes as a result of inflation sparked by the devaluation of the Kina and its sub sequent float last year. The government predicts the Consumer Price Index will surge 15 percent this year.

The pressure is now on the govern ment to control the wage demands from the public service, which have already begun and are sure to grow as the year progresses. ■