“2023-24 Budget: Not tough enough” (FT 8/7/2023)

The 2023-24 Budget presented by the Minister of Finance (Professor Biman Prasad) was a historic one for several reason. It is the first Fiji budget to be presented by a Professor of Economics for a democratically elected Government. It was presented by the Leader of the National Federation Party, the oldest political party in Fiji, in partnership with the largest indigenous Fijian Party in Fiji and a Prime Minister who having done the 1987 military coup, has a track record from 1997 of wanting to cooperate with the Indo- Fijian leaders.

     This budget also has substantial budgetary support from Australia and NZ who have increasingly become Fiji’s development partners in aid, trade and movement of labour.

     But most importantly for the next three years at least, the budget making process has changed for the better, through the appointment of an “expert” Fiscal Review Committee to make recommendations for the Budget.

     The trajectory of the Debt:GDP ratio has now been reversed, but too slowly perhaps; the Public Debt is still projected to rise; and a public who have become used to not making sacrifices for the last 16 years, are still not being taught the harsh lesson they need: “no pain, no gain”.

     Luckily, there is still time for improvements before Parliament passes the Bill in its final form.

Budget Process more Transparent

Of course this Minister of Finance conducted many public hearings, like the previous Minister of Finance, and heard what we all would have expected anyway.

     But this time he also appointed an expert group Fiscal Review Committee which generally gave solid advice.  These are decent, experienced, Fiji citizens from many fields, who the Fiji public can hold accountable, not like World Bank and IMF advisers, who come and go, whatever the quality of their advice.  The Members of the FRC chaired by lawyer Richard Naidu, are to be commended.

     But note that no interest group out there (representatives of workers or employers or communities) said: “Please, request the Professor Minister to tax us more and spend less so that out future generations will have an easier time”.

     Because without any doubt, the only way to ease the burden on future generations is by increasing revenue, relatively reducing expenditure, and thereby reducing the massive Public Debt which the previous “Smart” Minister of Finance has bestowed on Fiji.

     Khaiyum’s critical comments on the Fiji First Party Facebook page are a sick joke, coming from the very person who created the mess in the first place.

Budget Strategy: Go hard or easy?

First let us recollect that this Coalition Government has inherited a 16 year mess left by the Bainimarama Khaiyum Government which increased the Public Debt from about $3 billion to more than $9 billion dollars.

     A massive amounts of taxpayers’ money was wasted on badly planned and implemented infrastructure, with most state institutions in disarray, profiteering taking place at many levels, and the economy not growing to the extent it should have. 

     The Debt:GDP ratio was increased from around 50% to above 90%.

     To service such a level of debt while maintaining normal government expenditure is a nightmare. Read my Fiji Times article of 19 Nov. 2022 “Voters, the FFP’s Public Debt and the Poisoned Chalice for the next Minister of Finance”). That poisoned Chalice is on the desk of Professor Biman Prasad today.

     The huge challenge for him is how to raise revenue and to reduce expenditure relatively, so that the Net Deficit can be reduced, if the Public Debt has any hope of being reduced.

     This requires the Minister of Finance to administer very tough and unpalatable medicine to the taxpayers and consumers of Fiji.  He has to do that in the brief four year cycle that is available to the new Coalition Government elected in December 2022, with the prospect of the next election in 2026.

     Globally, smart Governments who have to apply tough medicine to the voters, do that in the first and second budgets they deliver. Then they go “easy” in the last budget before the election, so that voters can go to the ballot boxes “feeling good” about the new government.

     Unfortunately, while the 2023-24 Budget is full of positive measures, it has not been hard enough, given the options available to it according to the Fiscal Review Committee Report and what the WB and IMF recommended.

     There is also an odd “out of the blue” measure in the 2023-24 Budget which is a missed opportunity that can be still remedied by the next Parliamentary sitting.

The small progress

There is some progress being made, but very small.  I wonder why the Ministry of Finance documents did not present the following numbers in one simple table, but readers have to be put together from two separate tables.

     Let me remind the public that Government Revenues had collapsed from $3,181 million in 2018-19 to $2,190 million in 2021-22, and with Khaiyum continuing spending (by borrowing even more), there was a net deficit of -$1,223 million. 

     When revenues recovered over 2022-23 the Net Deficit was still -$750 million.

     The 2023-24 Budget projects to increase Government Revenue by 38%;  government expenditure to increase by 26%; and the  Net Deficit will reduce to -$639 million.

     But this will still result in the Public Debt rising by a small 6% from $9,882 million to $10,521 million.

     With the GDP expected to rise by slightly more, the Debt:GDP ratio is expected to decline from 81.2% to 79.3%. It is a very small decline but it is a start in the right direction.

     I suggest below that if some of the advice from WB and IMF is followed (and ignoring the obfuscating FRC Report comment), the improvement can be more significant.

     The Government Budget address says that they want to reduced that Debt:GDP ratio further to 60% by 2030, but I suggest that target will  be for the next government to reach. This Coalition Government should set its Debt:GDP target for the 2026-27 Budget, just before the next election- perhaps around 70% or less.

WB/IMF at odds with the FRC Report

There is one extraordinary measure introduced in the 2023-24 Budget which states with virtually no explanation: “The income of entities involved in the extraction and bottling of water will be exempt from Income Tax for 7 years. This will be applicable to existing and new businesses”.   Where on earth did this huge revenue loss measure come from?

     The FRCS can no doubt confirm that the profits of the water bottling companies (or at least one of them) have been extremely healthy for more than 20 years.

     Foregone taxes over the next seven years could easily amount to hundreds of millions of foregone revenue which can go to reducing the net deficit and the public debt further.

     The FRC Report itself noted: “The World Bank and IMF believe that the revenue losses from concessions could be as high as 2% of GDP (F$200 million).”

     Given that the WB and IMF teams would have confidential access to all the internal FRCS data, I am sure that $200 million figure is itself conservative.

     But astonishingly, Richard Naidu’s FRC Report states “The Committee is not as confident of this and believes that this approach is in any event too theoretical”.  How extraordinary to claim this? Any good economist who understands the approaches taken by the WB and IMF in developing countries for decades knows that these two very conservative institutions rarely go against corporate interests unless there is very good reason to do so.

     The FRC Report correctly recommended that “Government should undertake a special review of the key incentives to assess their economic impacts (including the probability that without the incentives the investments might have occurred anyway”. So it is extraordinary that the 2023-24 Budget announced this special tax holiday FOR THE NEXT SEVEN YEARS for this one industry with perhaps only three companies who have already invested in water bottling plant.

     I remind also that the FRA can probably also tell the Minister of Finance the massive amount of damage this one company’s heavy water-laden  trucks do annually to the left hand side of the road going from the Rakiraki water bottling plant to Lautoka from where it is shipped overseas, This massive export industry also creates an easily identified massive carbon footprint as an international liability for Fiji, easily and globally identified through the name of this  product.

     How much is the Minister of Finance giving away by this one tax holiday measure with massive benefits accruing to this one company and why?

     More importantly, how much extra tax revenue can be generated over the next seven years if this measure is deleted before the Budget is approved by Parliament?

Zero rated VAT items

In protecting the low income people, and contrary to the recommendations of the WB and IMF, VAT has been zero rated on essentials while introducing 15% for the rest.

     This continues a 2 tier system which the FRCS experts have said not only loses a lot of revenue, but also creates bureaucracy and loopholes for evasion of VAT. 

     Surely, it can be relatively easy to explain to the public that Xero Vat on essentials reduces costs of living for everybody and not just the 33% who are poor.

     Surely, the Minister of Finance can explain that the FRCS would collect say a $100 million more by not zero rating the essentials, and $33 million out of this could be added to the many good measures the Minister has to help the poor and vulnerable.

     This would save the Minister another $67 million which could go to reduce the Net Deficits and Public Debt.

     The Minister could also easily explain to the public that zero rating VAT or reducing import duties on imported items also encourages their consumption, and reduces the  consumption  of locally produced goods and foods like dalo, cassava, locally produced chicken and fresh fish.

     This is surely bad for future food security based on more nutritious domestic local foods (as advocated by health experts); it is not good for our agriculture; it not good for indigenous Fijians especially.

The Forgiveness of TELS debts

Of course, students who no longer have to pay back their TELS debts will be so happy at the Government’s generosity at letting go of more than $650 millions owed to taxpayers.

     But a few members of the public (like my old MBHS classmate Vijay Madhavan) have pointed out this is unfair to all those who have  been faithfully paying their TELS debt (FT Letters to the Editor, 3 July 2023).

     Surely the more rational policy would have been to require those who have got jobs after their graduation to pay their debts, while for those who cannot get jobs, the debts  are simply postponed until they do get their jobs and earn incomes.

     Can Government fine tune this policy before the Budget is finally passed by Parliament, with the possibility of raising perhaps another $200 million at least which can reduce the Net Deficit and Public Debt for taxpayers who have already paid for the education of all these students.

Many good measures

The extra allocations to education and nursing will help to keep our domestic labour market satisfied, keep our exports of labour going and to keep adding to our remittances incomes.

     The extra allocation to audit is absolutely vital especially for  public enterprises which have escaped scrutiny these last ten years. Such audits must also publish the facts and show where the money has been misused, so that future decisions can be made with proper cost benefit analyses.

     It is positive that extra allocations have been made for to statistics gathering by FBS and hopefully also for FNPF and FRCS. The FBS household surveys in particular are essential for the better targeting of poverthy alleviation and gender empowerment policies.

     The high military expenditure has been maintained and may be quite necessary at this stage of national development, especially with major initiatives being planned with Australian Defence Force.

     It is good for workers that consideration is being given for a review of minimum wages. May I suggest however that it is far more important to revive and extend the 10 Wages Councils under one Chairman, as was the case with the late Father Kevin Barr, and as recommended by my study for ECREA (Just Wages for Fiji: lifting workers out of poverty).

     I note that FNPF Board has now been partly reformed with employee reps for the first time in 10 years, although the Chairman should not be from the class of Employers who have benefited enormously under the previous Bainimarama/Khaiyum Government.

     It is good that the FNPF contribution will be restored from 1 January 2024. But what about restoring the hundreds of millions of contributions kept by employers over the last three years?

Justice for robbed 2012 pensioners

Note that that the Minister of Finance has acknowledged in his Budget Statement “Mr. Speaker Sir, the military regime in 2011 unilaterally and illegally reduced the pension rates for many FNPF pensioners and broke the contractual arrangement between the Fund and the pensioners. They went even further to pass a law to restrict these pensioners from challenging this in the court or law.  It’s over a decade, Mr Speaker Sir, and these pensioners have not received justice. Today we are going to correct this wrong and give some justice to the more than 1,500 pensioners who were put on the reduced pension rates.

     While that is welcome for some pensioners, it does not address the fundamental robbery committed against the other 1000 or so, including me (I declare my interest).

     There must be a full legal settlement to this breach of contract and all 2012 pensioners must have their property restored to the state they were in before the shameful robbery took place.

     Of course, this is not a problem for the Minister of Finance but for the whole of Government and especially the Attorney General, who is responsible for maintaining and restoring the Rule of Law in Fiji.

     The Coalition Government must resolve this robbery through the rule of law, not as acts of charity which many pensioners are requesting through Letters to the Editor.

Only the first Budget

The public must remember that this Budget by Professor Biman Prasad is only the first budget after 16 years of messing up by the previous Bainimarama/Khaiyum Government.

     I note that work will soon begin on a 10 Year National Development Plan to plot strategic and consistent pathways forward (including the next two budgets), guided by a full array of statistics gathered and fully disclosed to the public.

     Note that the 2023-24 Budget figures are only projected numbers for the next year. Government could add to revenues here and there; Government could go slow on capital expenditures until full audits have revealed past mistakes and solid decisions are made on sound cost benefit analysis, assisted by organizations like the ADB.

     Above all, the Fiji taxpayers, both workers and employers, could for once stop selfishly demanding more and more for themselves, and sacrifice a bit, go it tough a bit, at least for just a few years until the Fiji economy and government finances are out of the woods.

The overgenerous Ministerial allowances

     Many in the social media have also criticised that the Coalition Government has been slow in reducing all their over-generous salaries and allowances enjoyed by the Bainimarama/Khaiyum Government.

     Some are still too generous and an independent committee should be set up to determine these, not the Government Ministers themselves.

      The Government Ministers might also consider giving their international money-making jaunts a break, so that they can also share in the pain that the Minister of Finance should be imposing on the rest of the country through a tough 2023-24 Budget.

     Let this be a “Lose-Lose” budget for all today, so that the future generations can get a more decent life.