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“A fairer way to pay for Cyclone Winston” (edited article in Fiji Times, 12 March 2016)

12/03/2016

A fairer way to pay for Winston (FT, 12 March 2016)

Great credit is due to the Fiji public, social organizations, international donors, some corporations, and Opposition Members of Parliament who have responded most positively in providing resources for victims of Cyclone Winston.

But taxpayers of Fiji need to think more deeply about the fairness or equity aspects of some of the cyclone relief work.

Is it fair that relatively poor countries like India or China, or only Opposition Members of Parliament, or some corporations and not others, should be expected to give large amounts in cyclone relief to Fiji?

Given the regularity of national disasters (cyclones, floods and droughts), should Fiji not look at annually building up a politically-neutral fund for disaster relief like any other normal annual budgetary allocation, such as for health?

Fiji also needs to reduce the enormous wastage of valuable time regularly devoted to raising relief funds and goods, which often turn out to be quite minimal when the logistical costs are taken in to account.

I first address some of the “unfairness” aspects of the “voluntary aid giving” by donors, MPs, and corporations.

Unfair burdens on some donors

In 2014, Fiji had a GDP per capita of about US$5,000.

So no one questions the perennial and prompt relief to Fiji by our rich neighbors Australia (GDP pc US$62,000) (even though they also have their share of the really poor, especially among Aboriginals and Torres Strait Islanders) or New Zealand (GDP pc of US$44,000).

Fiji people rarely think about the political burden on donors like Australia who in giving large amounts of aid to Fiji, are always reminded by humanitarian agencies that there are far poorer people in the world, such as Bangladesh, who deserve more aid purely on humanitarian grounds.

But do we wonder how and why China gives so generously when its GDP per capita is only US$7,500 AND there are probably at least 50 million Chinese poorer than the poorest in Fiji.

Why do we expect India to give so generously even though its GDP per capita is a miserable US$1,600 which is a third of Fiji’s, with perhaps 200 million people poorer than the poorest in Fiji?

Imagine the generosity and sacrifice of Kiribati (per capita income US$1,500, only a third of Fiji’s) in giving $100,000. If Fiji were to give $1 per our population to some other devastated country, we would be donating an unprecedented F$900 thousand.

Of course, foreign policy of donor countries seeking influence with Fiji may be a part of the explanation but it does not detract from the significance of the humanitarian assistance.

But why is Fiji is not also demanding that all our thousands of rich people and profitable companies should also be required to contribute to the cyclone relief in a fair way according to a set formula which applies to all, and not just those who do so voluntarily?

How fair are local corporate efforts?

Within Fiji, there are many corporations which are very generously giving donations, in cash or kind, for cyclone relief, usually to the Prime Minister’s Relief Fund.

Some cynics may well say that most donating businesses are hoping for quid pro quo advantages from government in the future, or have received them or are continuing to receive them because of Government decisions.

Or they are just obtaining publicity, with some even threatening a media company with withdrawal of advertisements should they not get their desired publicity

Or just getting rid of old slow-moving stock, some perhaps even inappropriate as “cyclone relief”.

But the biggest criticism is that there are many companies which are incredibly profitable, not at all affected by the cyclone, and giving either nothing or relatively small amounts with great publicity, while they have recently received enormous financial handouts from taxpayers via reductions in company tax rates.

Take the banks  example

The Reserve Bank of Fiji annually publishes data on profits of banks and financial institutions, quite accurate with the only weakness being that the accounts are for different financial years (hence my estimates are approximations).

“Profits Before Tax” increased from around $126 million in 2006 (and $105 million in 2007) to around $167 million in 2014, probably above $180 million in 2015.

Between 2008 and 2013, the Bainimarama Government gave them the most incredible handout in Fiji’s corporate history by reducing company tax from 31% to 20%, thereby giving them and EXTRA $18 million annually for 2013 and 2014, and probably around $25 million for 2015.

Many other companies will similarly have made more after-tax profits because of the reduction in tax rates (one associated with the overflowing trough at Fiji Roads Authority even “generously” donated a cool million dollars to the Prime Minister’s Cyclone Relief Fund).

FRCA can tell us how much corporate tax has been effectively lost to taxpayers in 2013, 2014, and 2015, because of this tax reduction: my guess: more than $100 million in 2014 and more than $150 million in 2015.

Sadly, the bulk of these extra profits would not have been reinvested in Fiji, but just sent abroad (RBF can tell us how exactly much).

There is absolutely no reason, given the scale of the disaster Fiji faces, why Government cannot reverse this tax reduction, just as they had no compunction increasing and then reducing VAT these last few years.

To start a Disaster Management Fund, the Bainimarama Government should immediately pass in Parliament an Emergency Bill to restore the Company Tax Rate to 28% (the lower of NZ and Australian rates), applying fairly and equitably to all companies paying tax in Fiji.

This should immediately raise for this year, more than $100 million dollars to help in the cyclone relief work.

Fiji taxpayers should not forget that one large foreign bank which a few years ago “helped” an ignorant Bainimarama Government to float international bonds for $500 million at 9% interest, while the IMF was willing to lend the same amount at 2% interest, has been costing Fiji taxpayers an extra $40 million per year for the last three years.

Why Unfair burden on MPs only?

It was a real sacrifice, for the Opposition MPs to give 10% of their salaries for Cyclone Relief, perhaps a natural reaction to seeing Government ministers getting a lot of political mileage by distributing cyclone relief paid for by tax payers or donors.

The Leader of the NFP (Professor Biman Prasad) pledged to give 50% of his salary, when he had already reduced his salary in 2014 by more than two thirds in resigning from his well-paid position at USP (for the dubious pleasure of listening to the less than flattering comments from the Government side).

A natural public reaction might be to demand that Government Ministers and MPs should also donate 10% of their salaries, and not just hand out tax payers’ or donors’ money.

But I suggest to readers that it would be quite unfair to ask only Members of Parliament (Opposition or Government) to give a part of their salary for cyclone relief.

MPs are in parliament to do a job and they ought to be paid reasonably for doing that job.  They should not be paid so little that they become susceptible to bribes nor should they be expected to alone take a cut in salary every time there is a national disaster and ignorant calls from some in the public that the MPs should serve the public altruistically.

Why is Fiji is not legislating that our thousands of well-off accountants, layers, engineers, architects, civil servants, professors,  and all others on salaries should also contribute, on a fair and transparent basis, just as the Opposition MPs are doing voluntarily?

Income Tax at higher levels

Note that from 2013, the Bainimarama Government reduced the Marginal Tax Rate at the higher income levels (say above $50,000 per year) from 31% to 20%, thereby reducing taxes for those at $100 thousand by $2,000, and someone on $200 thousand by $13,000.

This reduction in taxes was totally unnecessary and made income distribution worse, since the Bainimarama Government had simultaneously increased VAT from 12.5% to 15%, mostly hitting the middle classes and the poor.

Recently, the Bainimarama Government reduced VAT to 9% in general, but removed the VAT exemption from essential items consumed more by the poor, hence they paid more on some items, even if they saved on others (net effect unknown).

To ensure that all high income people pay their fair share of cyclone relief, Government should pass an Emergency Bill that increases the marginal tax rate at the higher income levels (say more than 50,000 per year) back to 30%.  This would possibly raise another $20 million (FRCA will have more exact figures).

Many rich people would not even notice that their taxes had gone up.

The only fair way

One can expect that the poor affected by Cyclone Winston will not have any insurance policy to cover the damage done to them, as well-off people usually have.

Given the regularity of our natural disasters, Fiji needs to take out an “insurance policy” such as a permanent National Disaster Relief Fund, paid for fairly by tax payers, who can afford it (companies and high income earners) perhaps supplemented by a special excise or VAT on a few luxury goods to catch those high income earners who do not pay income or company tax.

To ensure that this Disaster Management Fund does not become a political football, it must have a governing board with representatives from Government and Opposition Parties, and the major Rehabilitation Agencies such as Red Cross and Save the Children Fund.

With this fund to draw upon, the Fiji communities and socially conscious companies and employees can save so much of the time and energy which they are currently devoting in raising cyclone relief resources so desperately needed by the victims. Often the amount raised does not match the real opportunity cost of their efforts especially when high income people are involved.

Should the fund become large because Fiji is lucky enough to go through a period without natural disasters, then Government can easily consider some part of it as a “Revolving Fund” for micro-credit and SMEs, channeled through the Fiji Development Bank, to be returned over time.

But note also that even if Fiji becomes more self-reliant, there will always be many donors and rehabilitation agencies willing to provide the many specialized cyclone relief services which Fiji does not have the capacity to provide.

 

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