A fine financial mess


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ONE comment must be made before entering upon any discussion surrounding the funding arrangements of provincial governments: It is unsustainable using the resources of a province alone.
While they were given pretty much carte blanche to collect certain forms of taxes and enter into business, their core business prevented a business outlook.
Provincial governments were created as political units, dependent upon the central government for sustenance and there as extensions of that central authority to do its bidding.
What nature or aspect or purpose of the national government was to be decentralised to the provincial government was not made explicitly clear.
In places it was presumed that all political, legal, administrative, and financial authority was decentralised and provincial governments moved with gusto to exercise their authority, often exceeding those powers.
In other places only some of those powers were claimed or exercised.
In almost all instances capacity was never there to exercise these powers to their fullest.
But it was in the exercise of financial powers that the provinces were found most wanting, both in its availability and in its proper management.
The Constitution, the Organic Law on Provincial Governments and the enabling acts of Parliament and accompanying regulations provided for some autonomous financial activity such as collection of certain forms of taxes and of setting up business arms but these were not the central focus of a provincial government.
The focus, in principle, was to have been delivery of goods and services to the people in the farthest reaches of a province.
In practice and in reality, Provincial Governments spread the politics, not the. goods and services.
This fact alone ought to be an inquiry stopper.
Why advance much further than the discovery that the enterprise had failed in its original purpose.
For, nowhere upon the face of this fair land has a province advanced, by the machinations of its own planning or finances and administration, such infrastructure, such public amenities and utilities, such institutions for education or health and such commerce or industry, that could be held up to the nation as an example of the success of this experiment.
It is a failed experiment and that is all that can be said about that. Tok i dai.
Indeed, the provincial government system has dismally failed the nation. They serve no purpose but debilitating cost.
While they have been granted certain revenue raising powers, there have been and continue to be marked inequality in individual province’s abilities based on resources and fiscal capacity.
Provinces have depended entirely for sustenance on transfers from the national government in terms of derivation, equity and needs.
The largest of these transfer is the minimum unconditional grant (MUG).
This funding is to meet the cost of national government functions and responsibilities that were transferred to provincial governments.
There was a smaller uniform grant to meet the cost of a six-person secretariat and a third transfer made to those provinces with resource developments. The argument for this third transfer, termed derivation grant and calculated at 1.25 percent of the export value of each product, was that the national government was getting a large share of revenue from these provinces which hosted resource projects or other industries which produced export revenues.
Based on the recommendation of the National Fiscal Commission a fourth transfer called the additional unconditional grant (AUG) was granted to provincial governments to equalize development among provinces but this fizzled out early in the piece.
The unequal development argument has fazed all governments and while attempts have been made through various means, the AUG and various public investment programs there is no evidence this has worked and the unequal development arguments continue and gather force each year.
For a time a Less Developed Area Program fund was allocated to a very few provinces and something for provision of sanitary services in rural areas but that was way too small and inconsistent.
Internal revenue remains a quite viable option but apart from Port Moresby and Lae, taxation has never quite made money for the provinces. Taxation has been limited to liquor licensing, motor vehicle licensing, gambling or bookmaker’s licenses tax and goods and services tax but while the licensing taxes are too little, the GST is collected by the Internal Revenue and that rarely gets remitted on time or at all to the provinces.
Early in the piece most provincial governments started business arms but many of the successful ones cut their umbelical connections to the governments and went off on their own.
A few provincial governments invested as equity partners in resource developments in addition to their royalty payments and derivation grants and Enga Provincial Government in particular has benefited immensely from its holdings in Porgera Gold through Enga Mineral Resources.
Southern Highlands, Hela, Western and New Ireland likewise have big inflows from resources developments in their respective provinces.
The Mineral Resources Development Corporation manages many resource landowner’s companies through which provincial governments keep a share and their stakes and investments have been increasing but how that translates to the all important business of government on the ground is uncertain and may I say it, negligent, excepting perhaps Enga in the area of education.
Developments in the National Capital District is difficult to credit to the operations of the city government as the National Government has been spending an inordinate amount of money on developments in the city.
Generally speaking, regardless of these sources of funding, development needs have always exceeded available funding.
Much of available funding seem sucked up into generous cash donations made by politicians to various groupings so much so that ‘commitments’ has now become an un-itemised component of national and provincial budgets.
Travel, accommodation, and vehicular purchases eat up sizeable chuncks of the budget. Salaries and emoluments easily carry a third of national and provincial budgets.
Taking the example from Port Moresby most developments are concentrated around towns and cities, which in turn attract the countryside towards these places, creating more settlements and creating a self perpetuating need to spend more on resources in future in these places.
The option to break free from these self perpetuating cluttering arrangements around provincial headquarters, to secure large tracts of agricultural land, to begin large farms and to build towns and move workers and families to these new towns such has has been done successfully in Malaysia has not entered planning stage here yet.
And so we close here on a very cursory discussion on financial arrangements in place in the provincial government system.
Deeper examination is required, no doubt, on this topic because we cannot contemplate yet another reform to the provincial government arrangement without a long hard look at how much we have spent and what we have gained along the way. Year 50 beckons in 2025 and we better have good numbers and facts and figures on the board which should guide future action across the next 50 years.
I should like to next show how the second tier government was applied in our biggest province, Morobe in the early years.