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“The facts on Poverty and Social Justice” The Fiji Times, 26 July 2014.

27/07/2014

The Facts on Poverty and Social Justice
Professor Wadan Narsey
The Fiji Times, 26 July 2014

[Qualification: There are many voters who believe that an unelected government, deemed illegal by the highest Fiji Court of Appeal, should not be changing policies on taxation, government expenditure and public debt for eight years. One founding slogan for the American War of Independence was: “no taxation without representation”.]

Economies can show high rates of growth, but have mixed results on the poor:

(1) the poor can  become poorer, because the cost of living increases more than their incomes (some evidence of this).

(2) the poor can become poorer because of increased Value Added Tax, while the rich can become richer because of reduced direct taxes reduced (some evidence of this).

(3) the poorest can become better off even as the rich become richer, and income distribution can still become worse (no evidence of this).

As with the economic growth analysis, the analysis of changes in poverty may also be broken into two periods: one of increasing poverty between 2005 and 2011, and the second between 2011 and 2014 when many positive budget measures were brought in in the areas of education and infrastructure especially.

The likely changes in poverty are examined through household survey data form the Fiji Bureau of Statistics, the Wages Councils, changes in taxation, and the annual budget measures of the last three years.

 Changes between 2002-03 and 2008-09

The FBS Household Income and Expenditure Surveys (HIES) for 2002-03 and 2008-09 give the changes in poverty between these two survey periods, with four years during the Qarase Government, and two years during the Bainimarama Government (the Bainimarama coup took place in December 2006).

Poverty between 2002-3 and 2008-9:

* in rural areas increased from 40% to 43%

* in urban areas reduced from 28% to 18%.

* Fiji as a whole, reduced from 35% to 31%.

Given the declining agricultural output in the sugar and non-sugar sectors, one can say confidently that rural poverty would have increased steadily through this entire period, both under the Qarase Government and the Bainimarama Government.

But because of the overall cumulative positive economic growth rate of 15% between 2000 and 2006, urban poverty under the Qarase Government would have been decreasing.

Changes in poverty between 2004-05 and 2010-11

The first year of this period was under the Qarase government, while the remaining five years were under the Bainimarama Government.

Assuming that the patterns of remittances were roughly the same throughout, the Employment and Unemployment Survey (EUS) data for 2004-05 and 2010-11, can be used to examine poverty at both the individual worker level, and also at the household level.

The EUS data at the household  level indicate that the percentage of population in households below an estimated poverty line, changes as follows, between 2004-05 and 2010-11:

*  in Fiji overall, poverty increased from 30% to 45%

*   in rural areas, poverty increased from 34% to 55%

*   in urban areas, poverty increased from 25% to 35%

The EUS individual worker data indicate that

*  poverty of the workers depending on subsistence increased from 35% to 67%.

*  the poverty of employees not covered by Fiji National Provident Fund, increased from 50% to 60% (those covered by FNPF remained the same at 20%).

This last result is not surprising given Governments’ failure to implement Wages Councils (next section).

Government failure to implement Wages Councils

The poorest wage earners who are not represented by unions are supposed to be protected by the ten Wages Councils, set very sensibly at different levels for different sectors depending on how well each sector was doing.

For most of the post-coup period, the Wages Councils were under the Chairmanship of Father Kevin Barr.

Unfortunately, Father Barr’s Wages Regulation Orders were postponed year after year by the Minister for Labor under orders from the Bainimarama Government, because of unethical pressures by employers and the Employers’ Federation.

While the stagnating economy after the 2006 coup may well have been an important factor for some employers, not a single employer ever showed their audited accounts in justification for their inability to pay, to the Wages Council Chairman (Barr) or the Labour Minister.

After postponement for four years, small partial adjustments were allowed, which did not keep pace with the large increases in the cost of living, and most of these workers, already extremely poor and numbering about 50,000, slipped further into poverty (as the EUS data indicates).

Eventually, Father Kevin Barr was sacked as Chairman of Wages Council, after accusing the Bainimarama Government of practicing “crony capitalism”, and threatened with expulsion from Fiji (Father Barr is an Australian citizen).

Then there was the National Minimum Wages debacle by the Chairman of the Commerce Commission (Dr Mahendra Reddy), who with great public fanfare, set a “scientific” national minimum wage of $2.32 per hour, only to retreat into silence, when the Bainimarama Government unilaterally, again under pressure from employers, reduced it to $2 per hour.

Regressive taxation: taxing the poor and helping the rich

 There has been a false claim that because of the raising of the income tax threshold to $15,000, the poor now do not pay any tax, but the reality is that all consumers pay tax through VAT, on essential and non-essential expenditures alike.

Since 2006, the Bainimarama Government has changed the taxation system heavily in favor of the rich and increased the burdens on the poor:

(a) VAT has been increased from 12.5% to 15% increasing the cost of living for the poor;

(b) Income tax at the highest income levels has been reduced totally unnecessarily from 30% marginal tax to 20%, lower even than all our neighboring countries, thereby increasing the after-tax income for the rich (except for those earning over $270k).

(c) Corporate tax has also been reduced totally unnecessarily from 28% to 20%, with most foreign companies repatriating their increased profits.

These tax reductions have probably given back more than $150 million to the rich, and the lost revenues regained by taxing the poor and the middle classes more, through the VAT.

Income distribution and social justice has worsened in this period.

However, there have been some positive measures for the poor through budget measures in the last two years.

Changes in poverty 2011 to 2014: high growth and budget measures

The period 2011 to 2014 has seen an average growth rate of 3% growth rate, massive infrastructure investments amounting to more than $1 billion, and the continuation of the remittance receipts from abroad (now amounting to more than $370 millions according to RBF figures).

While there is no data to assist, almost certainly, poverty will have been reducing between 2011 and 2014 but annual budget figures also have a bearing on household poverty from the government expenditure side, which may be picked up in future household income and expenditure surveys.

The Bainimarama Government in the last three years has also brought in comprehensive subsidies on bus fares and tuition fees, and increased access to scholarships and loans for tertiary education.   Commitments have also been made to make pre-schools free.

These are all clear and much appreciated benefits for the poor and there is statistical evidence of the positive effects.

The EUS data indicates that between 2005 and 2011,  the percentages of children attending  school have increased by 4% at primary schools (to almost complete coverage now), and by 7% at secondary to reach 88%, and by 7% at tertiary ages to reach 40%.

Almost certainly, the improvements in school attendance have continued to grow after 2011, especially at the secondary and tertiary levels given the easier access to scholarships and loans.

Of particular benefit to Indo-Fijian families is that there are no obstacles in their children’s paths to higher education, whereas previously there used to be quotas on scholarships, and limited access to loans.

These education policies by the Bainimarama Government counter, to some extent, the changes in taxation policy described above, but not for those poor families without children at school.

Note that the awarding of scholarships in select areas based totally on academic merit has meant reduced access to indigenous Fijians in these areas.

Given that the emigration data indicates clearly that qualified non-Fijians are far more likely to emigrate than indigenous Fijians, then the current ethnically blinkered scholarship policies, are likely to lead to severe skill shortages in the future in those areas.

Another recent positive measure has been the allowances for the elderly which is of some assistance to the destitute.

More importantly, the building of rural roads and other socially necessary infrastructure on water and sewerage throughout Fiji (especially in the poorest Northern Division) will be of great assistance to the rural poor, facilitating the marketing of their produce and better access to essential urban services, and improving their livelihoods and standards of living.

However, these future benefits will only eventuate, if the increased infrastructure expenditure translates into higher economic growth, which can pay for the current large increases in Public Debt, which will otherwise be a burden on the future generations of the poor and middle classes.

It also depends crucially on the Republic of Fiji Military Forces respecting the democratic outcome of the September 2014 elections and staying clear of politics whatever the result.

 

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