Inflation and fiscal policies

Focus, Normal

The National, Thuresday 12th January 2012

THE most basic issue and major problem facing the country at the moment and in the future is inflation and its effects on the living standards of the ordinary Papua New Guinean.
Inflation is the rising prices of goods and services over a given time.
In PNG, prices of all goods and services have soared be unprecedented levels in a short period of time.
As a result, most people are unable to meet their daily needs from the wages they earn.
Whether they live in the urban or rural areas, all are affected.
The real value of money is a measure of what one unit of money can buy in one given time.
For example, five years ago K5 would buy 2kgs of rice. Today, K5 could buy us only 1kg.
This shows, in the simplest terms, the decreasing value of money.
Like many other currencies, our kina has also gone down in value.
So effectively, there is less kina in the pocket of the man on the now than a year ago.
The people have called on the government of the day to execute its mandated responsibility by taking the necessary steps to ensure the population is protected and the consequences of inflation minimised.
More so when the country is experiencing its highest growth rate.
It is important to note that the high growth has not translated into improvement in social and economic benefits for the masses.
The government must accept responsibility for this situation.
It has failed to act or has acted inadequately to improve the lives of the people.
I do not believe that increasing the minimum wage will result in more money in the ordinary man’s pocket as organisations will seek to cover the higher wages with higher prices of their goods and services.
Worse, it may feed inflation further.
One way to increase the real value of our kina is reduce the prices of goods and services, reduce the goods and services tax, reduce personal income tax and increase the tax bracket which would immediately benefit the lower income earners.
For the 2007 Budget, the government amended the personal income tax rates by reducing the tax rates.
As an example when I reviewed the 2008 personal income tax rates issued by the Internal Revenue Commission (IRC), I note that this reduction meant a K16 saving for me each fortnight.
My gross pay did not change but I had an additional K16.
Furthermore, it did not hurt my employer as it did not have to pay me the additional K16.
My employer and other organisations facing a similar situation had no reason therefore to increase the prices of their goods or services.
I appeal to the government to act now.
It can afford to reduce the amount that it taxes the people who deserve a reward for their hard work.
Similarly, the government shold also reduce the goods and services tax (GST.
The government has no control over the costing in supplying a good or service by a private enterprise.
The Independent Consumer and Completion Commission (ICCC) is a complete failure or has ceased to been of any value to the country.
We have never experienced an ICCC input in price control and regulations and also prosecution of those who violate consumer rights. 
In addition, the government has no right to tell private enterprises how much costs to incur in producing and supplying a good or service.
For example, governments do not have the right to make a law saying the cost to make and supply a bag of rice to the public should be only K2 and not more. This would be unrealistic.
However, the prices of the goods and services on the shelves can be monitored and controlled to some extent.
When looking at the price of goods on the shelves and services, the only component of that price the government directly and immediately has control over and can change is the 10% GST portion.
The government must amend the GST Act to reduce the rate by half to 5%.
Such a reduction will translate to a net 5% reduction in prices of all goods and services that contain GST.
It will also impact on inflation.
The 2012 Budget handed down by the O’Neill-Namah government saw an increase in the income tax threshold from K7,000 to K10,000 a year.
Other than this, there were no other changes in tax rates or threshold which means that those in the not-so-The government has forgotten that during the tough economic times, the whole workforce sacrificed; endured, tightened their belts and supported the country in terms of paying taxes.
Now when the country is experiencing good economic times, the least the government could have done was to reward the hardworking citizens by reducing their taxes.
By increasing the threshold to K10,000, it means those earning K384 a fortnight will not be taxed.
But surely the government could have increased it further to cover more income-earners.
This will also make the minimum wage structure more effective and meaningful to the general worker. An increase in minimum wage without resetting the tax brackets would mean nothing as any increase in wages will be watered down by tax.
A concurrent adjustment in wage rise and tax reduction will put more money into the pockets of the hard working population.
The parliamentary budget sitting and debate is an important opportunity to pass these amendments and effectively show the people of Papua New Guinea that the government does care and is willing to reward the hardworking workforce of our country.
There is more than enough money flowing to the government from the resource boom and the country is in a position to afford all the reduction to taxes discussed above.
Monetary policy by the central bank alone is not enough. Fiscal policies
must also change and we should start with lowering personal income tax and the GST.