PNG’s billion-dollar budget

By Ruth Waram

The Papua New Guinea government’s SUS 1.36-billion 1996 budget hand ed down in November has been received by various sections of the com munity with mixed feelings.

Handing down the budget. Deputy Prime Minister and Minister for Finance Chris Haiveta said it was “a budget for the rural people and the low income earners” with the greatest losers being “me and my cabinet colleagues”.

The budget is divided between a recur rent budget of SUS 1075.1 million and a development budget of $U5291.1 million.

After deduction of principal repayments on debt, the government has budgeted total expenditure and net lending to grow at 7.4 per cent in relation to the revised 1995 out come.

Haiveta said the first challenge for expenditure has been to incorporate all the provincial reforms, which if implemented in 1996 would have provided additional marginal costs to the government of

around SUSI 42 million.

He said the second challenge for the government is to fulfil commitments to significantly increase the size of the Public Investment Programme (PIP) which has been set at $U5291.1 million for 1996 compared to about SUSI 42 million this year.

He said the SUS47.B (one per cent of GDP) budget deficit will be financed by negative $U525.4 million from domestic sources and $U573.3 million from external sources.

The government is targeting the gross international reserves to grow to at least SUS3OO million or about 3.7 months of non-mining import cover by the end of 1996. Current levels are around SUS2I3 million.

Haiveta said wage increases for public servants in 1996 will not go beyond the current four per cent but the Public Employees Association is still negotiating with the government for further increases.

Negotiations were continuing when the budget was handed down.

He said the major preoccupation with the 1995 budget handed down in March this year was to address the instability that was in existence when the Sir Julius/Haiveta government took office in August 1994.

Haiveta said the major problems his government inherited were typified by a sharp decline in PNG’s international reserves and a currency level that could no long be sustained.

He said much of 1994 and the early part of 1995 was taken up with the task of putting the economy back on a sound foot ing.

This, he said, involved a package of tough but necessary policy measures, including the devaluation and the subse quent floatation of the kina, tightening of monetary policy, improving the mix of budget financing by successfully negotiat ing international loans from multilateral and bilateral sources, and maintaining a tight public sector wages policy throughout 1995.

Some of the highlights of the budget are the injection of an additional SUSI 42 mil lion to the provincial budgets, the abolish ing of the controversial MPs slush fund the Electoral Development Fund (EDF) and the minor transport sectoral fund, the introduction of revenue-saving measures on indirect taxes and the lifting of the tax free threshold from SUS2I3O to SUS2B4O.

This change will free a significant number of low income earners from income tax while all other tax payers on higher wage levels will receive a flat SUS7I per annum tax saving.

Allocations for national departments were also reduced substantially and depart mental heads were told in no uncertain terms to work within what was given to them.

The government is intent on pursuing its plan of laying off about 4500 public ser vants in 1995 and a further 2500 in 1996.

Haiveta said these public servants have been identified in close consultation with

the respective departmental heads.

But the opposition has threatened to block the passage of the budget and has warned the government to be prepared for a supplementary budget unless the contro versial EDF and minor transport sectoral fund was reinstated with improved

accountability procedures.

Other amendments proposed by the opposition for inclusion before they could support the budget are: The transfer of key

functions from the national government to the provinces to be deferred until the capacity was built in the provinces to accept the extra responsibilities, and for all essential services, including health, educa tion and maintenance of major roads to be

adequately funded.

Presenting the opposition’s reply to the budget on November 29, opposition finance spokesman Masket langalio said the 1996 budget was “taking us (Papua New Guinea) back to hell” with excessive

spending plans.

“The budget is too confusing. It is too whimsical and it puts the entire future of our country in the hands of an untried sys tem of (provincial and local-level) govern ment too quickly,” he said.

“Most importantly, this budget will take us back to the starting point of excessive spending and put us through hell again.

“No member (of parliament) in his right mind would dare support such a budget that threatens to have us and our children re-live the terrible (financial crisis) years of 1994 and 1995 all over again. There is too much at stake,” langalio said.

He said the opposition was strongly opposed to exposing the PNG economy to the vicissitudes of the global economy directed by World Bank and the International Monetary Fund.

“While we believe in a free market economy, we caution against unplanned moves en masse into the mainstream of the global marketplace.

“The PNG economy is too small and its business houses too young and inexperi enced to stand up to the kind of vicious, cut-throat world of international market competition.

“We would opt for a planned, timely transition over a number of years,” langalio told the PNG parliament in his reply to the government’s budget.

Under reformed provincial and local level government system adopted this year, regional MPs were made governors of the provinces while the former premiers were made deputy governors.

Instead of the MPs slush funds, the gov ernment then introduced a Rural Action Programme with the blessing of the World Bank.

Haiveta said the increased allocation to the provinces reflected the'government’s push to indirectly prune the public service and shift more resources to the provinces.

The government also announced major changes to boost its trade liberalisation exercise to fulfil its Asia Pacific Economic Corporation (APEC) membership begin ning with a three-year tariff reduction exer cise on most goods. This is also in line with its anticipated full membership to the World Trade Organisation later this year.

Haiveta said the tariff reductions being implemented by the government will more or less be matched by increased indirect

tax collections and will remain a central plank for the government’s reform pro gramme.

The government has forecast a 1.8 per cent growth in 1996 compared to a nega tive growth of 4.8 per cent this year.

Haiveta said the anticipated growth is mainly related to the strong pick-up in the non-mining sector and construction activi ties related to the start-up of the Lihir Gold project in the New Ireland province.

The government has also forecast the inflation rate to drop to six per cent next year from the 15 per cent projected for this year. It expects the inflation rate to drop to four per cent by the second half of next year.

Regular economic commentator and executive director of the Institute of National Affairs John Millet has said the budget is premised on macroeconomic sta bilisation having been achieved and the need for the economy now to go forward.

Public sector reform is one key in creating a higher growth economy.

Millet said this reform requires a re allocation of government employment from national and provincial headquarters to districts. This is unfamiliar territory for them.

He says the success of the 1996 budget strategy depends on how line agency chiefs respond to the added responsibility.

Millet said the budget was handed down in an economic environment with many unhappy features. Consumers have been experiencing rising prices as a result of the devaluation of the kina.

The government suffered an economic crisis last year and had to seek financial assistance from the World Bank, the International Monetary Fund, the Export Import Bank of Japan and the Reserve Bank of Australia.

The World Bank’s liaison office in Port Moresby said this week the bank was still reviewing the budget and would reveal its position before the end of the year.

The Australian government is also understood to be reviewing the budget carefully and may comment on it during the annual PNG-Australian ministerial forum to be held in Kavieng, New Ireland province from December 8 to 10.

The PNG Chamber of Mines and Petroleum has welcomed the budget say ing generally, it was good for their indus try.

While welcoming the budget, the PNG Chamber of Commerce and Industry said the forgotten people were the “small entre preneurs” who depended on support from the government and this may be affected by the cut in the allocations to the Department of Commerce and Industry.

The PNG Fishing Industry Association said the main beneficiaries from the budget will be the foreign fleets operating in the country.

Meanwhile, many government depart ments, statutory bodies and institutions have criticised government over their bud get allocations.

Chief Ombudsman Simon Pentanu said the Commission’s SUSII36O allocation was “a total disappointment” as they had submitted an estimate of SUS7.BI million

based on leadership position’s created by

the government’s restructure programme.

Leadership positions created under the new reform have increased four or five times.

“I hope this was not a deliberate ploy to stifle our work because we play a very nec essary role in society. The $11811360 may seem much to many people but for an organisation which has been under-funded over the last three years, that is not much,”

Pentanu said.

The Councils of the University of Papua New Guinea (UPNG) and University of Technology (Unitech) will be meeting in Port Moresby next week to decide on what measures to take in light of the massive cuts in their budgets.

UPNG was allocated SUSI 7.6 million compared to $U525.4 million in 1995 while Unitech was allocated SUSI 6.7 mil lion compared to SUSI7.S million in 1995.

Salaries alone consume about SUSI 4.9 million of the Unitech budget.

It is understood some of the options being considered by the two universities are to close next year or they may decide not to enrol new intakes for the 1996 acad emic year, and 1995 first year students may not be accepted to continue second year studies in 1996.

Features of the 1996 PNG budget include: • SUS47.B-million deficit maintaining the “one per cent of GDP” principle; • greater emphasis on primary and sec ondary education; • larger commitments to infrastructure; • focus on primary health care; and • maintaining the government’s com mitment to fight crime in 1996 with mas sive allocations to the police and corrective institutions; • no increase in personal salary or wage tax rates; • PNG resident general mining compa ny tax reduced from 35 per cent to 25 per cent; • changes to log export tax rates and • transfer of shares listed on the yet to be established PNG Stock Exchange which are effected through a PNG registered bro ker are to be exempted from PNG stamp duty.

The power to access buildings and seize books and records has been clarified and access by the Internal Revenue Commission will now be subject to prior return approval by the minister for Finance. ■