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“The 2014 Budget: selling the farm assets”. 13 November 2013.

13/11/2013

The 2014 Elections Budget: selling farm assets
Professor Wadan Narsey
13 November 2013.

This budget illustrates what some governments do when elections are around the corner, when they want to give out “goodies” to voters,  and they cannot “balance the books”.

The 2014 Budget has some good policies on education, health, social welfare and small and medium enterprises which the receiving public are extremely grateful for, as enthusiastically reported by the media.

But the media has not been able to ask if Budget numbers are at all accurate given the absence of Auditor General Reports since 2006; how the “goodies” will be paid for; if some “goodies” are really good for the Fiji economy; and who is auditing the expenditure on the really big “goodies”.

In summary, between 2012 and 2014 (2012 “Actuals” are given in the Budget Estimates) the Bainimarama Regime will

–        increase the Total Operating Expenditure by $371 millions.

–        increase Capital Expenditure by $480 millions.

–        increase Total Government Expenditure by $870 millions.

On the other hand, Total Operating Revenues (Direct and Indirect Taxes) is expected to increase by only $335 millions.

So the shortfall for 2014 will be made up by selling government assets to realize $478 millions,  astonishingly labeled as “Investing Receipts” by the Budget Estimates.

This massive sale of state assets will be the largest in Fiji’s history, and implemented by an unelected government at that.

It essentially amounts to a farm selling its most valuable assets, its milking cows, after they fail to squeeze enough milk out of them.

On the expenditure side, there is one relatively costly and clearly vote-buying measure (20% increase in public sector salaries),  while an extremely large allocation (of more than $450 millions), continues to be made to the RTA with the public not being told if these large allocations are being audited by the Auditor General’s Office.

Neither is there any reporting at all on any auditing of many state-owned enterprises such as Water Authority of Fiji, Fiji Airways or entities such as FNPF for which tax-payers have large contingent liability (this critical issue is not discussed here).

 The four criteria

It is easy for the ordinary public to get carried away by “goodies” promised left, right and center, especially if there is little focus on how they will be paid for.

But the public and taxpayers can examine  this 2014 Budget by four essential criteria:

(a)   is the government giving the public the truth about deficits and Public Debts?

(b)  Is the government explaining truthfully  how they have used the previous year’s allocations, accompanied by Auditor General’s Reports to provide the essential independent commentary?

(c)   Is the government allowing the people (Opposition parties and the general public) to freely comment on their planned budget, as transparency and accountability demand?

(d)  Should an unelected government be at all selling significant public assets?

Despite all the media hoopla and supine corporate and public sector adoration, the 2014 Budget falls short on all four of the above essential criteria.

As time grinds on, it is so easy to forget that this will be the seventh year for a budget to be announced by this unelected military government, which removed a lawfully elected government with unsubstantiated allegations, and has been wielding all the powers of a normal government over tax-payers’ funds, yet with no public accountability whatsoever.

Deficits and Public Debt

Estimates for 2014 planned expenditures, planned net deficits, borrowings and the Public Debts, are only as good as the estimates of revenues which will be raised by FRCA (which largely depends on the performance of the economy) and the outcome of the sales of government assets (a Black Box, given that $475 millions have to be raised).

GDP is expected to grow in 2014 by only 3 percent (lower than the 3.7% in 2013), and exports expected to increase by only 5% following a 5% decline in 2013.

According to the Budget Supplement (Table 8.1, p. 67) the value of Foreign Investment actually implemented has been stagnant or declining from 2009, and significantly declined for the first half of 2013.

The current increase in GDP is therefore being driven by the large increases in Government expenditure, most of which is consumption expenditure which will leak immediately into imports (giving some extra VAT receipts on the way).

The Government’s capital expenditure may lead to increased private sector investment and growth but that will inevitably be a few years down the line (and only if there is an elected accountable government by September of next year).

Last year’s budget reduced corporate taxes from around 28% to 20%, and personal tax at the top end from 30% to 20%.  Not only has this worsened income inequality in Fiji as never before, but FRCA revenues from direct taxes is expected to decline by $75 millions between 2012 and 2014.

The 2014 Budget further reduces company tax from 18% to 10% for those listing on the Stock Exchange, while granting even more tax holidays in a number of areas.

These measures all place an unfair pressure on FRCA to deliver an extra 12% in revenue from Direct and Indirect Taxes in 2014 compared to 2013, when this year’s performance is expected to see an increase of only 6% over 2012 Actuals (and even that delivered with great difficulty after squeezing the private sector).

Government Asset sales

By no stretch of the imagination could selling off public assets have been part of the Bainimarama Government’s original justification in doing the 2006 coup.  Yet they are planning largest public asset sale in Fiji’s history (previous largest one: $253 millions from ATH sale to FNPF).

The $475 millions from Asset Sales (Budget Estimates, p. 373) are expected to include:

–        $200 million from sale of government investment in economic services (Air Pacific, CNB, FHC, FSC., etc);

–        $184 million from sale of government investments in infrastructure  (AFL, ATH, FINTEL, FSHL, FTL, PFLL, PTL, etc), and

–        $40 million from sale of Fixed Assets ($40 million).

Note that private sector investors will very naturally “cherry-pick”, buying only the shares and assets which are profitable, and rejecting the loss-making public enterprises.

Which sensible person would at all think of selling the good assets while retaining the loss-making ones?  Yet that will be the inevitable outcome of the Bainimarama Budget plans.

To repeat, the Budget estimate claim of the Net Deficit being a mere 1.9% of GDP will be achieved only if FRCA can raise the required revenues and Government Asset sales do realize $475 millions.

Note however the inherent deception in presenting this Net Deficit figure of a low 1.9% of GDP to be achieved by the 2014 Budget.

No responsible accountant ever claims a good profit result by including the proceeds from the sale of assets.

Without the Asset Sales revenue of $475 millions, the Net Deficit in 2014 would be $639 millions and 7.7% of GDP, requiring a large increase in borrowings and Public Debt.

Few will notice or remember the sale of public assets.

A deliberate strategy?

In any case, if there are any revenue shortfalls in 2014, they will be covered either by higher borrowings than estimated (thereby increasing the Public Debt which the future generation will pay) or by cutting back on the expenditures (which the public have already joyously welcomed).

Either way, the public will not know the facts until after the planned September 2014 Elections, when the next Budget is delivered in November 2014.

Any broken 2014 Budget promises are unlikely to influence the outcome of the September 2014 elections (unless by some miracle, the media is extra vigilant till then).

The 2014 Budget also explains partly why the Bainimarama Regime rejected the Yash Ghai Draft Constitution which would have required them, once the 2013 Constitution was approved, to give way to an Interim Administration which would take the country to elections.

Had they done so in September 2013 (when the President “assented” to the 2013 BKC), the Bainimarama Government would not have been able to use the 2014 Budget to enhance their chances in next year’s election, by distributing tax-payers’ money  throughout the  country over the next ten months, clad in salusalus.

(To get a good idea of how geographically strategic the 2014 Budget has been, just mark on a map of Fiji, all the place names mentioned in the 2014 Budget Address).

Lack of accountability and transparency

This will also be the seventh year when the Bainimarama Government has refused to make available to the public, the Auditor General’s Reports, which might be able to verify whether the numbers presented in the budget documents are reasonably correct.

No one knows whether this government has been misusing any of the public’s hard earned money for the last seven years, or how accurate are any of the important numbers given in the Estimates.

When asked at the FBC panel discussion for the missing Auditor General’s Reports,  Khaiyum suavely beat around the bush, while the docile panel and audience refused to exercise their taxpayer’s right to demand a clear answer.

For several years now, Bainimarama and Khaiyum have also refused to answer whether some Ministers have been receiving multiple salaries, and why through a private accounting company owned by Khaiyum’s aunt (Dr Nur Bano Ali) who frequently fronts up to the media justifying Government policies.

Also setting a trend now, the public could not get the detailed budget estimates on the day of the budget or even three days later, thereby discouraging informed commentary on the day of or after the budget.

Lack of free debate

For seven years now there has been no parliament or an elected Opposition which could fully and fearlessly scrutinize the Government’s budget.

Yet some media had little compunction in presenting  biased budget commentaries on the 2014 Budget, mostly from heads of organizations directly under the control of the Regime, or from the complicit corporate sector.

Quite illustrative was the publicly aired Fiji Broadcasting Corporation Panel Discussion whose members were nearly all appointees of the Bainimarama Regime, and whose organizational receipts and their personal positions all depended on the Bainimarama  Regime (for example the Road Transport Authority, the FEA, the Commerce Commission,  Water Authority of Fiji, etc).

While a few critical comments were slipped in by academics Professor Biman Prasad (Fiji TV) and Dr Sunil Kumar (FBC TV), neither academia nor the private sector in general could be accused of being robust scrutinizers of the 2014 Budget.

The Budget goodies

Of course, there are many good elements in the 2014 Budget, as there are in every annual budget, especially with an election around the corner.

One can point to  the freeing up of secondary school fees, removing ethnic criteria for scholarships, freely available loans for all who qualified for tertiary  institutions to be repaid after graduation and employment,  and the increased funding for education institutions.

One can point to all the tax incentives given to small and medium enterprises especially in rural and maritime provinces.

There is a positive promise of reduction of exorbitant fees and licenses faced by small enterprises.

There continue to be good allocations for rural roads, electricity and water, which will hopefully assist in the marketing of rural goods and services, improving their livelihoods,  and reduce the rural poverty which has surged in recent years.

It is wrong of some Regime critics to label such good policies as “vote buying” as the policies are inherently good for society, whether by an elected government or an unelected one.

The real vote buying

What can be labeled as a blatant “vote-buying” tactic was the blanket 20% or so increase in public sector salaries, just a year before the elections, especially given the government’s incomes policy over the previous five years.

[Very similar to the 2006 SDL/FLP Government’s agreement with Public Sector  unions just prior to the 2006 elections, agreeing to  salary increases for the next three years.]

For six years the Bainimarama Government has rejected proper wage adjustments for the poorest workers all in the private sector covered by Wages Councils, nearly all below the poverty line.

For six years, the Bainimarama Government did not allow public sector salaries to be fully adjusted for inflation although allowing large increases in the salaries of the military, police and prisons).

Ten months before the September 2014 elections, the 2014 Budget extravagantly increases public sector salaries right across the board by roughly 20%, completely changing relativities with the private sector, who can be guaranteed to not follow suit.

In the private sector, the bulk of the lower and middle classes have seen a 30 percent decline in real incomes, while their taxes will now pay for large increases in the salaries of the public sector, costing the taxpayers an extra $90 millions per year.

The members of the Public Sector unions cannot be expected to protest this large increase in burden for tax-payers in general, like all of us they will enjoy the extra income, BUT will it make any difference to how they vote next year?

Salaries of Permanent Secretaries and Ministers

Given that the Government was going to increase public sector salaries in the 2014 Budget, why did they increase Permanent Secretary salaries just three weeks before, and that by more than 100%?

My Letter to the Editor (20 October 2013) was not published by our free media.
https://narseyonfiji.wordpress.com/2013/11/01/huge-salary-increase-for-some-permanent-secretaries-letter-to-editor-20-oct-2013/

Of course, if the increases in PS salaries were part of the 2014 Budget announcement,  the Bainimarama Government would be asked to explain why the increases for the Permanent Secretaries were of the order of 100%, while the Deputy PS’s and others, were restricted to 20%.

Labor market economists would point out that the damaging human resource “leakage” from the Fiji Public Service is far more serious at the technical and professional levels, than at the PS level- none of whom have ever resigned because of a better job in the private sector.

[Tax-payers will remember that the current PS Finance went along with the ANZ-led “scheme” for borrowing F$500 million dollars in foreign bonds at 9% interest, when an IMF loan was available at 3%, thereby costing the Fiji tax-payers an extra $30 million in interest per year (which we are currently paying in hard-earned foreign exchange).]

But point c in my Letter to the Editor above might explain the puzzle. As the September 2014 election approaches, more and more voters will be asking the Bainimarama Government to explain what their ministerial salaries are, and why some of them have been paid through Nur Bano Ali’s company.

Of course, it will be easier to justify high ministerial salaries, if their Permanent Secretaries are also on high salaries, somewhat closer to them than their old salaries.

The doubtful expenditures

According to “Parkinson’s Law of Triviality”,  the average person will fuss over trivial sums of money they can understand, but gloss over large sums of money they cannot comprehend, such as $400 millions spent on a hydro or roads.

The 2014 Budget has followed up on the 2013  Budget by making yet another extremely large allocation for the Road Transport Authority, in excess of $450 millions.

A few months ago (5 August 2013), I sent a Letter to the Editor, not published by our “free” media, asking what were the unit costs of the RTA funded roads and whether the Auditor General’s Office was auditing the RTA expenditures”
https://narseyonfiji.wordpress.com/2013/08/12/pwd-and-road-transport-authority-performances-who-audits-the-rta-sent-5-august-2013-not-published/

That  letter is just as relevant today, when there are apparently three foreign (NZ) companies receiving large chunks of these taxpayers funds (while local contractors have been neglected), and they are also freely employing and financing many other sub-contractors, often employing foreign nationals when locals may be available.

Note that even if a mere 5% of this $450 millions is misspent due to inefficiency or over-billing, that will cost the Fiji tax-payers more than $20 millions, which is far in excess of many Government allocations really valued by the public, such as for pre-school education.

Will the taxpayers’ Chief Financial Officer (Mr Waqabaca) inform the public whether the Auditor General’s Office is auditing the expenditure of the tax-payers money allocated to the RTA?

Budget 2014 Postscript

On the 2014 Budget day (8 November), a few young law-abiding citizens (including no doubt some future leaders of Fiji) were having a picnic opposite the FRCA building where the budget was delivered.

They were arrested by police, their apparent crime being the words “C’mon Fiji – Make Budgets Public now” printed on their T-shirts.

The 2013 Bainimarama Khaiyum Constitution apparently has lots of delightful references to “accountability” and “transparency” that will be demanded of future governments, ministers and civil servants.

In arresting those young picnickers, the public and the media were reminded that the Fiji Police Force will not tolerate the public asking the current Bainimarama Government ministers or civil servants for transparency and accountability, regardless of the Constitution allegedly to be currently in force.

[Those with idle time on their hands, can nit-pick through the detailed 2014 Budget Estimates (if you can get your hands on one): there is many an interesting gem hiding in the dark plethora of numbers.]

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