K2.549 budget deficit, a concern

YESTERDAY Minister for Treasury Don Polye tabled the 2013 Budget in parliament.
The theme is “Empowering our people through inclusive and sustainable growth” and directed to the development of infrastructure programme, increase expenditure to health, education, infrastructure, plus law and order, stop leakage, eliminate and eradicate corruption.
It is a K13.031 billion budget, a deficit budget of K2.549 billion (7.2% of GDP), an increase in expenditure of over 23% compared with the previous year.
We have reviewed the Budget documents and conclude that the K2.549 billion budget deficit is a concern after past years of constraint trying to achieve balances to support this and could make a mockery of the government claim of trying to eradicate corruption, stop leakages and eliminate wastage.
It is hoped that the provincial expenditures will be wisely spent for the benefit of the majority population.
Despite the above mentioned, we move into year 2013 with stifled confidence that the PNG economy will continue to expand.
The economic and growth prospect is continuing as with economic stability.
l Tax/IRC primary
adjustments
There are no new tax measures.
On personal tax reduction, the tax-free threshold increased from K7,000 to K10,000 last year. This will continue to largely benefit the lower paid salary/wage earners.
n Tobacco excise
There is a further 10% excise increase on tobacco products; and
n Tariff increase     There is a small increase in tariff on importation of poultry (K0.20) and plywood (15%). A 10% to 20% increase tariff on imported used depending on engine size.
This, hopefully would deal with the current congestion, prevent under-valuation and fulfil PNG obligation under the Rotterdam Convention on ozone depletion.
l Other tax measures
There is an amendment to the Tax Act to recognise a nil assessment as an assessment.
Provinces will forfeit their 60% share of GST if they introduce their own sales/service tax law on top of the GST.
It will extend the thin capitalisation rule to all companies other than approved finance companies.
The bookmakers’ turnover tax distribution (from consolidated funds to the province) is to be amended to address current conflicting laws.
l Expenditure on key focus areas
Government will shift responsibility to the provinces, districts and local level governments 
It will also accelerate development of major, high priority transportation infrastructure programme.
Increase in health (free basic health care), education (tuition fee-free education to Grade 11 and 12), infrastructure (bridges, water, etc,) and law and  order (increase in police).
There will be effective implementation and accountability, stopping leakages, eliminate wastage and eradicate corruption.
Multi-year budget on project funding is over a five-year period rather than just one year.
l Economic indicators
Growth is forecast to increase from 7% to 8.9%.
Inflation is forecast to be at 8%, a moderate level largely due to the slowing of LNG activities.
Inflation for 2011 (8.5%), 2012 (4.1%), 2013 (8% forecast) and 2014 (5% forecast).
The sovereign wealth fund was passed in parliament consisting of two coordinate and integrated funds:
1. A stabilisation fund, established from liquefied natural gas, minerals and petroleum revenue; and
2. A development fund, established from tax, minerals and petroleum revenue.
The SWF will be operational by end of next year.