Govt not getting share of resource benefits: Report

A RECENT study based on the PNG Extractive Industry Transparency Initiative (PNGEITI) reports have found that the government is not receiving its share of resource benefits and recommends that the country broaden its economic base in order to increase its bargaining power in current and future extractive projects.
The research study titled: Does the PNG government get its fair share from the resource sector? was presented at a public seminar at the Institute of National Affairs in July to an audience representing government, industry and civil society.
It focused on the Government’s ability to increase its bargaining power in its current and future planned resource projects. The study was undertaken by economist and associate professor Martin Davies at the University of Washington and Lee and Dr Marcel Schroder, economics lecturer at Lebanese American University.
Both researchers are guest lecturers at the University of Papua New Guinea (UPNG) and the Institute of National Affairs (INA).
The researchers constructed a new database based on the PNG EITI annual reports that documents fiscal resource revenues for a large set of resource rich countries from 2006 to 2017.
“Using this data set, we analysed the PNG governments’ take from the resource sector and study its determinants through a simple game-theoretic model as well as regression analysis,” Davies said
“This allowed us to make comparisons between PNG and other resource-rich developing nations.”
The study used regression analysis which allowed them to control factors of bargaining strength as implied by the game-theoretic model and found that the PNG government’s take had declined substantially in recent years and seems low compared to other resource rich countries.
“Salary and wage tax is largest payment received,” Schroder said
“PNG is the only country in our database of 50 countries where this is the case. “Corporate income tax and royalties seem unusually low.”
The study provided potential fiscal regime recommendations.
“PNG is a developing country which means funds for crucial spending such as infrastructure, health and education are needed today rather than tomorrow. Therefore, avoid deals with multi-national corporations that lead to extreme back-load of fiscal take.”
They also recommended avoiding giving too many incentives (loss carry forward arrangements, tax concessions, treating royalties as advance income tax) and recommended that the state reconsider zero rating GST.
“Many resource rich countries derive significant revenue through GST. It is also relatively easy to administer. Consider relying more on royalties on sales,” Davies said.
“They have many advantages with Revenue flows today versus tomorrow; they are more stable than income tax and other payments and they are relatively easy to administer.”
The study encouraged the audience to understand the reasons behind low income tax payments; was it only due to fall in commodity prices?
“There seems no mechanism for the government to benefit from exceptionally high commodity prices (e.g. additional royalty, excess profit tax),” Schroder said.
“Therefore, in future, if deals offered by multinational corporations aren’t attractive, valid to leave resources in the ground for later.”
“The researchers further provided economy-wide policy recommendations.
“We need to foster better macro policies and change the national mind-set where of needing the next resource projects to ‘save us’.”
The study recommended to focus less dependence on resources sector for growth, revenue and foreign exchange and focus better policies in non-resource sector such as agriculture and tourism.