Reflections on the 2012 Budget by Fr Kevin Barr

Wages Council Chairman Fr Kevin Barr is "sorry to throw a wet blanket over all the euphoria ... about the Budget [and acknowedges its] creative and worthwhile initiatives"  but  ...

 The reaction to the recent Budget announcement for 2012 was generally positive. The Business sector particularly were overjoyed. The pay increases for public servants – especially for the police, doctors and nurses – were welcomed by everyone. The protection of some local industries – in particular those who produce canned fish and exercise books – was a positive move. And the new slightly more positive approach to pensions for those in the FNPF showed that the cries of many pensioners had been heard. Some hoped that the Budget would make it possible for many consumers to have more in their pockets to spend. But ...


Many suggested that a lot of careful thought had been put into the Budget and, no doubt, it had but perhaps even more was needed. It seemed clear that the strong lobby from the tourism industry, the manufacturers, airports and some other business sectors had certainly been listened to and followed. Various government ministries – especially education and health – had received the increases they had hoped for and planned for.

Of course one of the major issues in the Budget was that of Taxation. There were good and not so good messages here.

Tax Cuts for Corporations

The reduction of corporate tax from 28% to 20% may certainly attract investors and please the business sector but it is the reduction of the taxes of corporations which has been at the root of many of the recent protests in the United States. We have seen similar but not so large reductions in the last two Fiji Budgets. The 2012 Budget cannot be understood without taking into account last year’s Budget. The 2.5% increase in VAT in last year’s budget makes the large reductions this year possible and follows the long established policy of the IMF whereby corporate taxes and the taxes of the rich are reduced but everyone - rich or poor - is caught in the wider tax net of VAT. So the many poor and ordinary people actually subsidise the rich few.

Manufacturers (including the garment industry) have also been given tax cuts on duty for equipment and machines imported in 2012.

Mr Hari Punja was quoted as saying that the reduction in corporate tax was a big encouragement for businesses to invest in the economy and that he will be investing $10m in the coming year. That is good. However his promise should become a norm for everyone and be made a condition for all corporations who receive such large tax reductions.

Moreover the reduction of corporate tax and the tax incentives given to manufacturers should also mean that there is no further interference and opposition from the business lobby to the proposed Wage Regulation Orders for workers covered by the Wages Councils.

It is all very well to set in place policies such as tax reductions to attract investors and encourage the business sector in order to increase economic growth BUT how does this economic growth benefit the workers and the people of the nation unless regulations are set in place to make sure that workers receive just wages and all the people benefit from the economic growth? The old theory of “trickle down” has been proved to be a myth. It rarely happens. For thirty years or more we have been hearing about attracting investors and increasing economic growth but it never seems to happen.

Again economic growth depends not just on investor capital but on a well trained, satisfied and enthusiastic workforce. But how can workers be expected to work productively and enthusiastically when their wages are kept low and their Unions are emasculated and their Union leaders vilified.

We may need many more private sector investors BUT workers and their Unions are as important to economic growth as any investor and this has not been captured in the Budget. Instead, what we are seeing is worker’s rights being ignored and their unions effectively destroyed while every advantage is being offered to investors and the business sector. In such conditions do you think workers want to be productive and cooperative?

Income Tax

The concept of breaking the income tax system into eleven brackets is a good one and shows some appreciation for the justice of progressive taxation. The slight increase of the tax threshold from $15,000 to $15,600 is welcome and the reduction of the lower bracket from 25% to 7% is encouraging. However cutting the tax for the top bracket from 31% to 20% is far too big a cut and sounds like George Bush all over again. It is the rich who can afford to pay and a 25% rate would be more acceptable. Of course the social responsible levy can help to compensate for this but the levy is small and only temporary – not permanent.

However the expectation or rationale of government that the changes in the tax structure will put more money in the pockets of low income and middle class families is very unrealistic. It will certainly assist middle income families but not low income families who are in the vast majority and make up those who live below the poverty line or are vulnerable to poverty. I may be wrong, but previous statistics showed that 50% of those in full-time employment earned incomes below $10,000 and 71% of those in full-time employment earned incomes below $15,000 (the previous tax threshold). So at least 70% of workers will not take home any extra pay and maybe only about 30% of those in full-time employment will benefit and they will not be the low income earners. The 60% of workers covered by the Wages Councils all earn below the poverty line. Consequently the claim of the FCEF that more money will be put into the pockets of ordinary workers is far from the truth.

Moreover we seem to have forgotten that we are living in the aftermath of two disasters for the poorer section of our nation. The first - the 20% devaluation of the Fiji dollar in 2009 - meant that the purchasing power of existing low wages decreased while food increased by 36% and building costs by 29%. The second was the increase in VAT from 12.5% to 15%. Being a regressive tax it had serious effects on poor and low income families. Nothing in this budget assists those low income families to have more money in their pockets. So any good intentions were poorly thought through.

The Social Responsibility Levy

It seems that the “Occupy Wall Street” campaign that began in New York and spread rapidly throughout the world has really sent shockwaves through established centres of power all over the world – even in Fiji. The protestors are fighting against the injustices brought about by the existing neo-liberal free market system of capitalism which has benefited the 1% of rich America and brought hardship to the 99%. They are fighting for an economic system which will work for all – including the 99%.

The 2012 Budget’s Social Responsibility Levy of 3% may be a token recognition of the injustices of our present economic system. However it will apply to those earning more than $270,000 a year and will increase by gradations of 1% according to income increases over six income brackets. This levy is a good move, however, is not permanent and “would be reduced and gradually eliminated as people progressed from welfare payments or when Fiji’s domestic product (GDP) grew”. The levy would apply only to a very small percentage of tax payers and would bring in only $11m.

The levy should be permanent, should extend to other income levels and increase progressively from 5% to bring in more than $50m. It would be one way of regulation to ensure that the benefits of economic growth are distributed more equitably. If further extended it could also help to decrease the high levels of growing inequality in Fiji. As the recent book – The Spirit Level - by Wilkinson and Pickett showed high levels of inequality in a nation are bad for everyone – including the rich. They produce greater health problems, more crime, more courts, more prisons, more stress and greater insecurity.

Confusion about Poverty

In so many Budgets (and in so much thinking of Government and the business sector) poverty and poverty alleviation seem to be restricted to those who are cared for by the Ministry of Social Welfare. But this Ministry only caters for 3% or 4% of the population who are the worst cases of those in poverty – those who are usually termed “the destitute”. It does not cater for the other 32% of those living below the poverty line or the additional 30% who are very vulnerable to poverty. So Family Assistance payments and food stamps only reach the destitute poor (and not even all of them). The vast majority of those who are poor are not mentioned. They hardly figure in the budget even though they are a huge percentage of our population. They need better incomes, reasonable food prices and better more affordable housing.

One wonders if those who drew up the Budget have given much attention to the MDGs and chapter 8 of the People’s Charter.

An Anomaly

While investors – local or overseas – get VAT and other tax exemptions for bringing in investments, a number of NGO’s who bring in millions of dollars from overseas donors to benefit the poor, the disabled or various needy sectors of the community receive no such consideration. They also provide employment in the country. Why the difference? Why are they also not given tax exemptions?

Conclusion

So I am sorry to throw a wet blanket over all the euphoria generated by the business community about the Budget. Yes! There are some creative and worthwhile initiatives in this Budget and the increased allocations to some civil servants and to key Ministries are very welcome. All these are to be applauded. But I sometimes think we bend over backwards to encourage tourists and to attract investors but what of the needs of the majority of the people in our country? Of course we all want to see greater economic growth but economic growth cannot be achieved to the detriment of our own people. Moreover we need to spell out clearly how any economic growth – big or small – will really benefit the ordinary people of Fiji and not just investors.

We need a people-centred budget – not a business-centred budget. The economy is meant to benefit all the people of the whole nation. We cannot go on forever believing the myths propagated by the World Bank and the IMF. Economic growth depends on more than private sector development. That is only part of the solution. We also need an educated and satisfied workforce which is properly recognised with decent wages and protected by strong workers Unions. Moreover the benefits of the much talked about economic growth (whether it is big or small) need to reach the ordinary people of the nation.

Ordinary people are concerned about their ability to properly feed their families, educate them and provide them with decent housing. Where does the Budget try to adequately meet these concerns? VAT needs to be removed from all food (except luxury foods and food bought in restaurants). Housing needs to be subsidised in varying degrees for those earning below the tax threshold.

Comments

Gutter Press said…
Father Barr’s analysis of the budget is thought provoking and almost all of the points he makes are sound, such as eliminating VAT on all but luxury imported foods, calling for a higher proportion of state (ie taxpayer) money to be directed towards low income and destitute people and a meaningful rise in the minimum wage to reduce the enormous disparity that exists between the wealthy and the extremely poor.

However it’s easy to take issue with his call for taxes to be kept at a higher rate to achieve this since he doesn’t call for the military’s budget to be cut at the same time. It might be his pragmatic view that the military is unlikely to reduce its own income, but by completely ignoring this potentially enormous saving on the nation’s coffers he leaves himself open to an accusation of not seeing the wood for the trees.

An $80m reduction in military expenditure (some would argue that it could be a $200m reduction) would free up the funds Father Barr says are required by those living below the poverty line. Then, rather than taxing companies at a higher rate, it would a simple matter to decree that all registered companies hire the unemployed soldiers at a rate proportional to the size of their company. It could be termed a tax by another name. Companies already pay FNU levies in accordance with their overall salary expenditure, so the proportional hiring of well disciplined ex military employees should be easy to decree. They would certainly be desired by security companies and, depending on aptitude, could probably take a position in almost any trade or profession – or even start their own business.

It’s highly unlikely that this would be possible in one go, however the process could be started immediately and in this way Fiji’s society would become less, not more, militarised in the lead up to the promised elections.

If the present regime wishes to see a strong civilian government post 2014, there is something quietly insane about increasing the number of military personnel year after year. This is enlarging the very institution that has been instrumental in all of Fiji’s past coups and which must consequently take much of the blame for the destitution that Father Barr is working so hard to alleviate.

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