Difficult times, but a daring budget!

By USP economist Dr T.K. Jayaraman in the Fiji Sun.

In the midst of global slowdown with new fears in Europe, budget exercise in an island economy supported only by tourism and agriculture unlike in the mineral resources-endowed Papua New Guinea with booming exports, is indeed difficult.

The 2012 budget is a daring one, as it confidently looks forward towards strengthening the economy.


Fiji, which managed to bounce back from two consecutive years of contraction with a likely growth of two percent in 2011, described by the recent IMF Mission early this month as the best result of the past five years, with a growth estimate of 2.3 per cent for 2012 is well on track with measures of fiscal consolidation.

Tax relief measures
Mindful of a persisting lull in industrial production, a soft investment activity and modest consumption spending, in line with slow growth in private sector credit during the past few years, Prime Minister and Minister for Finance in his budget proposals has included measures to boost domestic demand.

First and foremost, Government is aware that inflation in 2011 at seven per cent has been hurting low income groups. The budget measures have amply provided much needed relief measures, which would contribute to stepping up domestic demand.

The income tax threshold in 2012 will increase from $15,000 to $15,600. For other income groups, tax rate is lowered from 25 percent to seven per cent for $15,601- $22,000; from 31 percent to 18 percent for $22,001-$50,000; and from 31 percent to 20 percent for $50,001- $100,000. These tax relief measures measure “will put $53.1 million back in the pockets of Fijians”.

For encouraging private sector investment, the budget has announced a reduction in corporate tax rate: from 28 to 20 percent, which will give the corporate sector greater opportunities to extend and expand their businesses.

For compensating the revenue loss and for equity purposes, the rich have been called upon to make their contributions. A Social Responsibility Levy will be applied on full chargeable income, starting at 23 per cent for income tax band $270,001 to $300,000. The top one per cent will thus contribute an estimated $9.8 million to social welfare programmes through this Levy.

Fiscal consolidation
Other measures include Hotel Turnover Tax (HTT) which will be renamed as Service Turnover Tax (STT), would also apply to other tourism related services, including rental car operators and other services. While there have been a few increases in fiscal duties on seven items ranging from canned fish to DVDs, there are 11 items on which fiscal duties have been reduced or eliminated totally. Notable are agricultural inputs and raw materials used for industrial production outside Viti Levu.

Fiscal duty on fruits and vegetables not grown in Fiji would be reduced to five per cent from 32 per cent.

“Sin” taxes, namely excise rates on various tobacco products and liquor have been appropriately raised upwards so that “health” of the nation is promoted and protected.
While revenue measures are designed to give relief to lower income groups and encourage private sector investment, government is aware of the public debt position. Public debt is 55 per cent of GDP; and with contingent liabilities of more than 15 per cent of GDP and unfunded FNPF liabilities, it is around 70 per cent.

The budget has kept the 2012 deficit small. The estimated total revenue for 2012 is $1.9 billion while the estimated total expenditure is $2.1 billion. The gross deficit is estimated at 2.8 percent and the net deficit: $135 million or 1.9 per cent of GDP. Already the IMF Mission has commended Government’s effort in keeping the 2011 fiscal deficit at 2.5 percent.

Now with additional pruning, budget deficit is smaller than the recommended two per cent of GDP.

Finally, one thing which deserves mention is the close co-ordination of monetary and fiscal policies. The Reserve Bank of Fiji has kept a very accommodative policy for encouraging investment. In late October, RBF reduced the benchmark interest rate known as Overnight Policy Rate from 1.5 percent to 0.5 percent, the lowest in recent years for providing “the environment needed to boost economic activity.”


So with proactive fiscal and encouraging monetary policies, it is time for the private sector to play its part. It should help lay, in the Prime Minister’s words, “the foundation of Fiji’s future-one that breaks with that which weighed down our past, yet builds upon the strengths of the Fijian people.”

Comments

Anonymous said…
pm is doing the right thing but what is missing and more important is money for infrastructure? Road
needs to be fixed properly.
GET REAL! said…
So, "It's time for the private sector to play its part"?

Are you kidding? It is the private sector which has kept Fiji afloat both before and since 1987. The fact that so many have neglected or ignored knowing this, is irrelevant. Wealth and value have been added: not by the Public Sector for sure!

Yet, how has the Private Sector in Fiji been rewarded? Apart from Big Business (and that includes criminal big business), which has always elbowed in on its more than fair share, NOT AT ALL.

The dominant ethos has been one of classifying business in only one category. Yet, many medium businesses in Fiji have struggled for years to maintain employment (especially in the service sector) and have received no support other than the next looming or arriving coup d'etat : a sock on the jaw lasting, to our estimation and measured: five years at least to each recovery. The failure to sensibly space out coups d'etat beyond the measurable recovery period has been a massive failure of expertise (not unlike efforts at Family Planning). By now, we ought to be sufficiently conversant with macro-economics and their flow-on effect to know that this is micro economic suicide; not unlike a car-crash viewed in slow motion on a speed camera.

So, who precisely is telling us that we are now in a WIN WIN? Look at the names and you will laugh. Because these are the same names who profited from the last 'bought' elections. Coup or 'rigged' elections, they are always there viz US Historian Barbara Tuchman's Epilogue 'Lantern on the Stern', following in the wake of one or another upheaval. Vultures and Predators All.

"Rational thought clearly counseled the Trojans to suspect a trick when they woke to find the entire Greek Army had vanished, leaving only a strange and monstrous prodigy beneath the walls. Rational procedure would have been, at the least, to test the Horse for concealed enemies as they were urgently advised to do by Capys the Elder, Laocoon and Cassandra. That alternative was present and available yet discarded in favour of self-destruction."

You cannot say you were not and are not being warned. A Pullitzer prize-winning historian - no less. These self-interested, irrational (apart from serving their own inordinate greed)Carrion Crows are still around. Their crowing fills the air.

"When it came to government, Plato assumed that a wise ruler would take most care of what he loved most, that is, what fitted best with his own interest, which would be equivalent to the best interests of the State (sad, slip of logic here?). Since he was not confident that the rule always operated the way it should, Plato advised as a cautionary procedure that the future guardians of the State should be watched and tested during their period of maturing to ensure that they conducted themselves according to the rule. ....Chief among the forces affecting political folly is lust for power, named by Tacitus as 'the most flagrant of all the passions'. Because it can only be satisfied by power over others, government is its favorite field of exercise."

Watch them! Test them!

Euripedes termed this power lust as "the controlling power of the dark, buried forces of the soul, which not being subject to the mind are incorrigible by good intentions or rational will".

(The March of Folly - late, Pullitzer Prize-winner Barbara Tuchman Historian)

There are no grounds for stating "financial intent will be good for both the rich and the poor". It is a contradiction in economic terms. There are only 'winners and losers'. Sound analysis will demonstrate this. Any horse race will demonstrate this. Quit trying to have our cake and eat it! In other words: 'Get real'!
Anonymous said…
@ Get Real

Man, you are so all over the place! From coups to ancient Greek history to 'macro-economics', Plato etc. You have lost us all with your gobbledegook. What are you smoking bro?
Anonymous said…
Its a fucking strange emotion to be on one hand thinking "jump for joy" boy, but on the other hand feel like one is sharing the proceeds of a theft, dirty money, as it is, because this budget is brought down by a dictatorship.

Halabe,Ah Koy and all the rest of you elite in Fiji, you are now bought and complicite, no less than the mercenary bati.

Everbody earning less than $15k a year, what do they get. right.

Thats righty, about 80% of the population and for them the military council has sent for more brand new arms and troop carriers.

Toast to the Junta, you are cut and past to a "T"
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