pn885. Fiji Leads the Way—and helps the poor— on taxes in the new National Budget

Whatever the reasons, ordinary people in Fiji are going to be much better off as a result of  tax changes approved in the new 2021-22 National Budget, and an increase in the minimum wage from $2.68 hour to $3.01 on April, then $3.44  on 1st October and $4 an hour from 1st January 2023. 

Predicably, the tax and wage changes have been seen as election bribes. Elections are due any time after 26th of May and there have been signs Bainimarama's First First has lost some of its support. A SODELPA coalition could form the next government. SODELPA  Opposition speakers called the tax changes "overly optimistic, an election budget" from which the rich would also benefit, while NFP's Prof Biman Prasad said it was "a little too late." His party had been calling for relief on VAT for several years.

Lower tax revenue will certainly result in an even high level of debt that will need to be paid off, probably with higher taxes, sometime in the future, but with the economy showing signs of recovery the current high level of debt may not be a problem in the long term. (See note below)

Meanwhile, VAT (Value Added Tax) will be totally removed from 21 items from 1st April. The items include sugar, flour, rice, canned fish, cooking oil, potatoes, onion, garlic, baby milk, powdered milk, liquid milk, dhal, tea, salt, kerosene, cooking gas, soap, soap powder, toilet paper, sanitary pads and toothpaste. The government will also remove the current 20 cents a litre on fuel to offset fuel price increases due to the Ukraine war.

VAT will, however, be increased to from 9% to 15% on 21 items, including alcohol, tobacco, textiles, clothing & footwear, perfumes, jewellery, watches, stereos and sound systems and other electrical equipment, and professional services such as legal and accounting, management and consultancy, architectural and engineering, scientific research and development, advertising and market research, veterinary activities and other professional, scientific and technical activities

The increase in VAT to 15% will cover goods and services that previously attracted ECAL (Environment and Climate Adaptation Levy), such as prescribed services, white goods and motor vehicles, and will apply to all turnover in excess of $100,000. ECAL will be removed and replaced by the adjusted VAT rate of 15% for these items. The tax on an item that carried 9% VAT and 5% ECAL would increase by only one percent.

Whatever the reasons, ordinary Fjians— but especially the poor— will benefit from the cuts in VAT, especially on food and household essentials, and the VAT increases on luxury items and professional services will not greatly affect them. Hopefully the increased tax on alcholol and tobacco wll persuade people to use less or give up.

A similar re-ordering of GST in NZ should be a priority for our Labour-led government!

Note

Government’s total revenue is estimated at $2.25 billion while the total expenditure is $3.72 billion for the 2021/2022 Revised Budget. This will result in a net deficit of $1.46 billion equivalent to 14.2% of GDP. Total government debt is projected to reach 88.6 percent by the end of this fiscal year and based on the projected economic recovery and planned deficit reduction, the debt to GDP ratio is expected to come down to below 80% in the next 3 years. Government is expecting the economy to grow by at least 11.3 percent this year driven by the vaccination of Fijians and the reopening of our borders. In an estimated three years on the economy is expected to be restored to pre-pandemic levels. Foreign reserves currently stand at around $3.2 billion, sufficient to cover 8.8 months of imports.

-- ACW