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“Please Sir, I want some more”: the giving game (edited version in The Fiji Times, 8 Aug. 2015).

06/08/2015

“Please, Sir, I want some more”: The giving game (Fiji Times, 8 Aug. 2015)
Professor Wadan Narsey

In Charles Dickens’s book “Oliver Twist”, Oliver, one of the starving orphanage children who are given only one bowl of gruel, timidly asks the fat, over-fed master of the workhouse:  “Please Sir, I want some more”.

In recent weeks, the Prime Minister and the Finance Minister have both been handing out $1,000 “certificates” to hundreds of Small and Medium Enterprises.

From the beaming smiles of the recipients, it looks like a good scheme but on the grounds of equity, the long neglected and deprived SMEs should ask “Please Sir, can we have some more?”.

First, the taxpayers (whose money it is) should ask the Bainimarama Government the following questions:

Q1.       Will the handouts work as intended?

Q2.       Why not let the FDB lend the appropriate amounts to approved borrowers?

Q3        Is Mr Bainimarama repeating the “handouts” he criticized previous governments for?

Q4        Why not give even more to the SMEs as have been given to the rich?

Q5        What about the secret “handouts” to ministers through a private accounting company?

Q1 and Q2:  Will the logic work?

The recipients are supposed to exchange the certificates for a cheque from the Fiji Development Bank to the supplier of the business equipment or materials that recipients had requested in their application.

Some SMEs will invest for growth.  But some will simply enjoy the money, because there is no incentive to invest for growth.

On the other hand, a loan from the FDB (for even higher amounts) or some micro-finance institution would have to be paid back –  so the SME would then have to invest for growth.

Q3:   What of the “handout mentality”?

In his speech at the United Nations in 2007, Mr Bainimarama justified his 2006 coup by accusing the Qarase Government of massive rigging of the 2006 election by using taxpayers’ funds to buy votes.

Mr Bainimarama pointed to the SDL “agricultural scam” which gave out boats, engines and brush-cutters (for which a few people were jailed, including a prominent hardware merchant).

For Mr Bainimarama to give out exactly one thousand dollars each to thousands of SMEs, and promise to do this every year, appears to be a cheap popularity buying gimmick, which no decent development bank or micro-finance institution would do.

Last week, Mr Bainimarama also gave away four boats in the Yasawas.

Of course our SMEs will thank and praise the Government, exactly as they did when the Rabuka, Chaudhry and Qarase governments gave their “handouts” to the people.

But these handouts to poorer people amount to a mere $2 million this year.

I suggest that this is far too small, not just because of the importance of the SMEs in our economy, but also because of the size of the handouts to the rich these last three years.

Q4:  The massive handouts to the rich

In the 2012 budget (applying from 2013 onwards), company tax was reduced from 28% to 20%, while the personal income tax rate at the highest levels were reduced from 31% to 20%.

This has been the biggest blow to the desirable social objective of equitable income distribution, in the history of Fiji since 1970.

An unelected Minister of Finance, with a stroke of a pen, gave the MOTHER OF ALL HANDOUTS to the rich, I estimate to be worth at least $100 million for 2013.

A small number of companies would have received a few millions each, while many would have received hundreds of thousands each.

This massive handout to the rich not only continues year after year, but grows as the economy grows.

For 2015, the increased after tax profits to the rich probably will amount to around $150 million (FRCA will know more accurately).

Mr Bainimarama will say “but my Social Responsibility Tax imposed a 48% tax on the incomes of the richest people” (people earning more than $270,000).

What he didn’t say (or perhaps didn’t know) is that the richest people in Fiji earn their incomes from company dividends, which are tax-exempt. So a few of the fat cats (lawyers, doctors and accountants,  none of whom can trade through companies) were caught.  But company directors escaped the net.

That Social Responsibility Levy, not only created a strange odd jump in tax rate at that magic income figure, but  did not last long, did it?

How did the rich use it?

Just like the poor SMEs, the rich would also have said “thank you”.

But unlike our SMEs, the foreign companies (like the banks and insurance companies) would have immediately repatriated the extra profits (probably more than $50 millions extra) overseas (the RBF can tell us how much).

Many local companies would also have sent their extra profits overseas, to their families living abroad, some for protection against devaluation and some for new investments (such as in PNG), while some portion may have been re-invested in Fiji.

Not surprisingly, a few companies have very publicly donated to charity, a few hundred thousands, which are mere fractions of the millions of tax handouts received.

I am told a few local companies happily gave a few hundred thousand dollars each to the fund raisers for a particular party, for its 2014 election campaign (none of the political parties have published their accounts, as far as I know).

No doubt, many of the rich will also have enjoyably spent some part of their tax handouts on themselves and their families.

No one really knows accurately to what extent these handouts to the rich have increased investments.

Government deficits and Public Debt

While Bainimarama gets all the credit from the SMEs, all these handouts come from the taxpayers’ own pockets – to be paid now, or in the future.

The tax reduction hand-out of $150 million for 2015 will reduce FRCA revenues by that amount, and puts pressure on FRCA to recover the lost revenues from VAT (paid largely by the poorer and middle classes) and fees and charges on small enterprises, who can only complain as they do bitterly. (Even poor struggling market vendors are being milked from all sides, including some branch of the the Fiji National University which like another Dickensian character, Scrooge, is squeezing the employees’ levy for TPAF and back-dating it several years, apparently).

Ultimately, this lost $150 millions for FRCA becomes part of Net Deficit of Government, and increased Public Debt, which current and future generations will pay.

But there is more.

Q5       Hand-outs to Ministers

Soon after taking power in 2006, Mr Bainimarama is reported to have been paid $180,000 in back-pay for leave that he had accrued for many years, apparently approved by the then Minister of Finance, Mahendra Chaudhry.

Just before the 2014 elections, the Bainimarama Government gave all Ministers huge salary increases amounting to more than $50-100,000 each.

The public does not know at all what salary increases the Bainimarama Government gave themselves from 2010 to 2013, through a private accounting company. The Prime Minister’s Office has refused to give either the Ministry of Finance or the Auditor General’s Office the details.

The Public Accounts Committee is currently investigating this, and surprise, surprise, the Ministry of Finance and officials in the Prime Ministers’ Office are unable to comply.

What on earth do the Permanent Secretary of PSC (Parmesh Chand) and the Chairman of the PSC (the CEO of ANZ Bank, Mr Mohan) have to say about this blatant disregard of the financial rules for the civil service?

Ultimately, looking at the Bainimarama Government’s Giving Game, and their promise that it will continue every year, the cynics may well ask: are the $1,000 handouts to the SMEs “red herrings” or bribes in the run up to the next election? They certainly seem like very small fry compared to the shark-sized bites that that Ministers have already received.

A better approach

The Fiji Development Bank and micro-finance institutions (like FCOSS) which have the expertise in helping finance SMEs (and should be further strengthened) , should be allocated at least $100 million per year to lend whatever credit is required by deserving SMEs who can never get the required credit from or profit focused commercial banks (there is no money in micro-finance, the honest bankers will tell you).

There is no need for a “personality cult” around politicians daily using taxpayers’ money to give hand-outs to the people, in the process undermining the professional work of the Fiji Development Bank and micro-finance organizations, and cultivating again the “handout mentality”.

The Government is currently throwing away large sums of advertising money (yet again, following on from the flag fiasco) at a barrage of expensive ads asking the Fiji public to tell those formulating Fiji’s Development Plans what their “dreams” are for the future.

The SMEs might want to tell the civil servants that their dream is that the Bainimarama Government will give SMEs as much as he has already given the rich, these last three years.

Given their massive contribution to the economy in terms of employment and poverty reduction, the SMEs are certainly entitled to ask, like the starving Oliver Twist, “Please Sir, I want some more”.

In 2010-11, workers in the informal sector (subsistence farming, housework, gardening, small unregistered businesses, family workers, self-employed, street vendors)
comprised 52% of the Labor Force,
but earned only 23% of total income,
with an average income of $61 per week.

 Between 2005 and 2011,
while the Labour Force increased by 13%,
those in the formal employed Labour Force (working in paid jobs with registered businesses or for the government) decreased by 1%,
while the number of informal workers increased by 29%
with the average incomes of informal workers declining by 45%.

[Still unpublished Report from the Fiji Bureau of Statistics (Fiji Women and Men at work and leisure: changes 2004-05 to 2010-11  (based on my analysis of Fiji Employment and Unemployment Survey 2010-11).]

Dear readers

I am taking a break from this column and Fiji for several months to complete a book for Palgrave Macmillan, with the (sleep-inducing) title of “British Imperialism and the Making of Colonial Currency Systems”.

 

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