Budget 2013: a bundle of contradictions

  • 26th November 2012
  • 2012
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New tax laws and duty increases announced in Budget 2013 will undermine business confidence and fuel inflation.

Draconian changes announced to the tax laws in the Budget are hostile to businesses and will compel the local business community to look elsewhere for a more friendly business and investment environment.

Likewise, the hike on fuel will increase the already high cost of transportation across the board. It will fuel inflation, penalize the poor, particularly the rural dweller and add to the high cost of doing business in Fiji.

This so-called green tax on fossil fuel, ostensibly to encourage the use of bio and non-fossil fuels, is highly premature as alternatives for motor spirits are simply not available. In actual fact, it appears to be just an excuse to raise extra revenue for a cash-strapped regime.

Indeed, a critical look at Budget 2013 reveals that the regime has serious cash flow problems. It is now at a precarious stage where it is forced to borrow heavily and sell its assets to stay afloat.

The sale of its overseas mission properties to the Fiji National Provident Fund is a case in point. The buy-out by the Fund of the State’s off-shore properties which would then be leased back to the State, smells a rat, as does the proposed sale of FINTEL shares to ATH which is 58% owned by FNPF.

It is clear that the cash-strapped regime is bent on milking the FNPF dry. The outlay by FNPF of a further $150 million to complete the failed Momi Bay project will add substantially to the already massive write down of the Fund’s assets following the completion of the Natadola resort.

Who will oversight these deals on behalf of the Fund’s members to see they are not short-changed to rescue a bankrupt treasury?

Equally worrying is the projected budget deficit for 2013 at 2.8% of the GDP. Viewed against Fiji’s mounting debt crisis, standing at $4 billion, (75% of the GDP including its contingent liabilities), the regime’s decision to borrow substantially next year for its capital works programmes is irresponsible and unsustainable.

At the same time, one must regard with caution ambitious promises contained in Budget 2013 such as the $722m earmarked for capital works of which $422m is for roads and bridges.

Indeed, an informed analysis of the regime’s past budgets will show a huge deficit between what is promised and what is actually delivered. On an average, over 60% of the projects announced in its capital budgets in the past years have remained unexecuted.

This is why the regime refuses to publish the annual statements of government accounts and finances for public scrutiny. It is just a paper budget aimed at vote buying.

Relief for the poor?

The vote buying aspect of Budget 2013 is indisputable. The regime’s sudden out pouring of compassion for the poor and other social justice measures in Budget 2013, need to be weighed against its insensitive policies to date which show no real commitment to the plight of the underprivileged in society. For instance:

• The 10% minimum wage provision for civil servants and the 10% salary increase to the unestablished sector: conflicts with the numerous deferments and cuts in the past to Wages Council-awarded pay increases for poorly paid unorganised workers in the private sector;

• The State pension scheme for those over 70 which is definitely a theft from the Fiji Labour Party manifesto as are a few other policy measures: clearly conflicts with the regime’s approval for the 50% slash to FNPF pensions rates which has sent 90% of its elderly pensioners into acute financial distress; as well as its decision to withdraw social welfare allowances from 3000 needy recipients who have no other means of support;

• The reduction in income taxes need to be offset against a whole series of indirect taxes such as increased duty on food and everyday consumer items which shift the tax burden to the poor who can ill afford to pay for the ever-rising cost of living;

• Duty removal on smart phones and imported vegetables, both of which are luxury items enjoyed by the rich: is in gross conflict with the 10% duty slapped on imported liquid milk and other milk products such as milk powder and cheese. Liquid and powdered milk are food staples which are already over-priced.

This is a grossly insensitive move that will put these essential staples virtually out of the reach of the poor in a country which produces barely 20% of its milk consumption; and where malnutrition among children is a serious concern.

• The 5% reduction in electricity rates is welcomed but is not enough to restore to low income earners the benefits they were robbed of by the Commerce Commission and the regime in the FEA tariff restructuring exercise last year. The lifeline tariff in existence prior to the restructure, should be reinstated to assist the poor.

Budget 2013 leaves a whole lot of other pressing questions unanswered such as:

• Is AIR PACIFIC meeting its debt repayment obligations to FNPF?

• Is FBC paying off its debt of $22m to. FDB and if so where is the money coming from seeing that it receives a government subsidy to the tune of $300,000 a month to stay afloat?

• How much are the Prime Minister and his Cabinet ministers paid and by whom?

• Why is the Mahogany industry in dire straits? Will it have a similar fate to that of the sugar industry.

All in all, this Budget is a bundle of contradictions. It is rooted in bad policy advice. IT WILL :

• fuel inflation
• deter investment
• erode business confidence
• penalise the poor
• destabilise State finances