HOW THE POOR FARED IN THE 2011 BUDGET

[posted 3 Dec 2010,1100]

Kevin J. Barr

[Note: Father Kevin Barr says each year he does a paper for the newspapers based on his analysis of the impact of the Budget on the poor. This year both the newspapers chose not to publish it. We run the article with the permission of Father Barr]

The poor and the disadvantaged were not forgotten in the 2011 Budget announced on Friday. But the allocations made for them were totally inadequate to their numbers and totally inadequate to any commitment to overcoming poverty as expressed in the People’s Charter and the Millennium Goals. Basically the Budget (entitled “Enhancing Economic Growth and Inclusive Development“) addressed the needs of investors and the business sector – especially the tourist industry – to enhance economic growth. The influence of the IMF and the ADB was apparent and little evidence was given of “thinking outside the box” of their recommended policies and prescriptions. More on this later.

Addressing Poverty of Access:

In terms of improving areas for what sociologists call “Poverty of Access” some good things were put in place which could benefit everyone –including the poorer section of the community. These include:
Infrastructure development in terms of roads, bridges and jetties; Grass roots initiatives in terms of health care for villages and communities;Allocations to sustain and improve the sugar industry;Attention given to improve agriculture in rural areas;Maintaining the school bus fare scheme, tuition costs and text book scheme and introducing an electricity subsidy for schools. (This is very good but there is little new here. Unfortunately tying some of these concessions to a poorly thought out and unpopular zoning policy by the Ministry of Education is a retrograde step.)

Numbers in Poverty:

Government seems to accept that the analysis of the 2008 Housing Income and Expenditure Survey registered a general decline in the percentage of those living below the poverty line from 35% to 31%. However this was before the 20% devaluation of the Fiji dollar which has had serious and unacknowledged repercussions on the poor – especially the 71% of workers who earn below the Tax threshold of $15,000 and the 50% of workers who earn below $10,000.

The percentage living below the basic needs poverty line has surely increased. As well, there is another percentage of the population (30-35% ??) who live close to the poverty line. Because they are vulnerable to poverty they can easily fall below the poverty line if the breadwinner of the family dies or loses his/her job (as has happened to many recently).

However, despite the high percentage of those living in poverty or close to poverty, government budgets consistently provide welfare assistance only to the very small percentage of those who qualify for “Family Assistance” payments. This covers about 23,000 or about 9% of the 31% living below the poverty line (or less than 3% of the total population of the country).

The retention of the food voucher scheme for those on Family Assistance (FAS) payments and the addition of another 10,000 to the scheme is welcome as long as it is better administered than last year and does not involve reductions in the Family Assistance payments to existing clients (as happened last year).

Targeting the Poor – The issue of food

Budgets consistently say that government will have policies specifically targeted to the poor (and not everyone). That is fine. However government seems to have a very unrealistic idea of the numbers of those in poverty and those vulnerable to poverty in the country. Only those on the FAS seem to be considered to constitute the poor.

One of the main components in reckoning the basic needs poverty line is the cost of the food required to keep people alive. It is based on a very Spartan diet, not very exciting to eat.

According to statistics from the Bureau, the 20% devaluation of the Fiji dollar sent food costs up by 38% and building costs up by 30%. Even after the Commerce Commission has recently helped to reduce the cost of basic foods by 9%, this still means that food costs have increased considerably.

While some basic food items will not be subject to VAT increases, others will. Moreover (as happened previously) the cost of local foods in the market will also increase because of the general rise in VAT across the board. Already there were big increases following the impact of devaluation.

The Increase of VAT by 2.5%

The Budget tried to play down the increase of Value Added Tax by 2.5% to 15% saying it was necessary and there was no choice and no alternative. We also heard that it was a recommendation of the recent IMF delegation.

Now everyone knows (or should know) that VAT is a regressive tax. In other words it affects the poor much more than it does those who are rich or have adequate incomes. In other words it increases poverty and inequality in the country. For a country like New Zealand or Australia which has high wages, unemployment benefits and a properly established social welfare system to care for its poorer members VAT increases might be an acceptable alternative. But for a country like Fiji which has so much poverty, inequality, unemployment, low wages and a very meagre social welfare system the introduction of VAT increases poverty and disadvantage and makes a joke of any program for poverty alleviation. It also seriously calls into question our commitment to the People’s Charter and the Millennium Development Goals.

There are always alternatives – especially for our government which wants us to “think outside the box”.

The Policies of the International Financial Institutions (IFIs)

For years the World Bank, the IMF and the Asian Development Bank have been talking about “Poverty Alleviation through Private Sector Development”. In other words promote the private sector, privatise government services, give concessions and encouragement to investors and business interests, and introduce tax “reforms” and labour “reforms”. As well reduce public expenditure on health, education and welfare. Trust the “Market”. Go in for a free-market export-oriented economy and follow the principles of extreme liberal capitalism (or “economic rationalism”). Funding was provided on condition that countries followed these so-called “structural adjustment” policies.

Numerous studies have shown that these policies, far from improving the lives of the ordinary people, have usually produced greater poverty and inequality and any economic growth does not trickle down to the ordinary people. As one overseas expert expressed it at a USP Symposium in November 2009, these policies have certainly produced economic growth for some but at the expense of an increase in poverty and inequality for many.

The Meltzer Commission of the US Congress in 2000 came to a frightening conclusion: “Neither the World Bank nor the regional Banks are pursuing the set of activities that could best help the world move rapidly to a world without poverty or even the lesser, but more fully achievable goal of raising the living standards and quality of life, particularly in the poorest nations of the world.”

The Fiji Times (Nov 27th 2010) which reported on the Fiji Budget also reported on page 32 that the recent United Nations Conference on Trade and Development reported that “the number of very poor countries has doubled in the last 30-40 years while the number of people living in extreme poverty has also grown two-fold.” The Report noted that “the model of development that has prevailed to date for these countries has failed and should be re-assessed”. It called for a new structure of development.

While Fiji is not a least developed country (LDC) it is about time we move away from the prescriptions of the World Bank, the IMF and the ADB and the suggestions of our own right-wing economists, think “outside the box” and find a model for development that benefits all our people – not just the few. The British Prime Minister, David Cameron, noted at last year’s World Economic Forum at Davos that, when many people look at capitalism today, they see: “Markets without morality, globalisation without competition and wealth without fairness. It all adds up to capitalism without a conscience and we’ve got to put it right”.

Housing for Ordinary People

I suppose one question that some of us raised about the Budget was “Where is any new allocation for housing for the poor and ordinary people of the country?”

There was an allocation of $10m to assist those middle income, first home owners who wish to purchase properties at Waila City. This is basically a repetition of an allocation from last year. It does not help the poor and ordinary people of the country unless a family has multiple incomes and/or remittances. Less than 30% of our workers earn above $15,000 – the tax threshold. It seems that the allocation aims to assist Top Symphony, the Malaysian company which has undertaken to construct Waila City.

Conclusion

So, while the poor and disadvantaged were not exactly forgotten in the 2011 Fiji Budget, the recommendations were inadequate to the large numbers of those in poverty and facing disadvantage. Moreover the increase in VAT as a regressive tax calls into question all poverty alleviation initiatives and governments commitment to the People’s Charter and the Millennium Development Goals.

As noted above we welcome those initiatives which will improve “poverty of access”. We also welcome the introduction of a capital gains tax and the call for true and accurate records which give full disclosure – especially where this proves or disproves employer’s “ability to pay” proposed wage increases.

As always, many of us would like to know how exactly “private sector development” translates into “poverty alleviation”. Or, in terms of the title of the present budget, how will “enhancing economic growth” actually translate into “inclusive development”. It just never seems to happen in reality – only in theory.