O’Neill discusses 2020 Final Budget Outcome

The National Business

Former Prime Minister Peter O’Neill discusses and interprets figures from
the 2020 Final Budget Outcome (FBO) during a recent live chat on his Facebook page.

THE figure in the outcomes does not look good.
It certainly shows that the economy is in a very severe contraction, meaning that it is slowing down and is in recession.
The growth figure projected by our Government in the 2020 budget has not materialised.
We ended up borrowing more in the last 24 months.
The level of debt keeps building up. The interest rate keeps increasing. The expenditure isn’t going down.
But, more serious concern is the borrowings in domestic markets through the Central Bank, where we are still paying very high interest rates and we are giving government bonds and treasury bills at high interest rates.

Gross Domestic Product (GDP)
When you look at the measurement of debt to GDP, it is about the level of affordability, whether the economy has enough growth/revenue so it can repay the debt.
In 2017 it was 31.9 per cent.
In 2018, it was 31.1 per cent.
In 2019, the new Government came in and included SOE debts – 36 per cent then 40 per cent.
In 2020 its 49.2 per cent.
This year, it is expected to further rise.

Debt
Total public debt: 2017 was K23.5 billion, 2018 was K25 billion, 2019 went up to K33 billion and in 2020 it reached K40 billion.
In less than three years, we have almost doubled the size of the public debt to the country. It is likely to go up to K47 billion at the end of this financial year.

Revenue
In terms of revenue, one figure that is coming out of the 2020 outcome papers is the slight increase in revenue from salary and wages tax.
It is stated that we are getting more from workers’ salaries and wages tax being paid.
My assessment is that there is no new creation of employment in the economy.
It is because of large payments by companies/projects are making for employees that are parting the employment sector.
From the finish pays they are getting, they are paying huge taxes to the Government.
And as a result, the revenue was much higher than predicted – K3.5 billion in salaries and wages taxes received.

Expenditure
Because of lack of reforms, we are seeing that over the past two years, government operational budget was in 2019 K11.7 billion, and 2020 K12.5 billion.
That’s a substantial increase that is unacceptable.
We can’t continue to increase the cost of maintaining the public machinery that is consuming over 50 percent of the budget and not cutting costs and reforming the public service.
This reform has been going on for many years.
I think it’s time the Government bites the bullet and implement recommendations by the Public Sector Reform Committee.
But largely aim at reducing the cost of the government and its systems in the country.
I think it’s important that the Government continues to review that.
Capital investment in the country has declined by almost K200 million.
Summary
I am concerned about the restrictions and influence by the Government over the Central Bank.
The Bank by law is responsible for monetary policy while the Treasury is responsible for fiscal policy.
That has been the separation since Independence.
Today, we see some legislative changes put forward exerting influence over the bank’s operation, gives lack of independence to the bank.
Many skilled, semi-skill and unskilled Papua New Guineans are out of jobs, they’re now accessing superannuation savings which is for retirement.
It is the Government’s job to create confidence in the economy, thus creating employment opportunities for our people.
Recovery is possible if the Government starts:

  •  LIVING within our means and preparing Budgets accordingly;
  • STOP borrowing for unproductive means and be mindful of the unsustainable Debt to GDP levels that will now be with us for generations;
  • CEASE pandering to so-called expert international advisers and use local knowledge and experience;
  • BE prudent with and account for the Covid-19 funds;
  •  SPEND only when necessary and focus spending on health workers and supplies;
  • STIMULATE the economy with personal income tax breaks and incentives for small and big businesses to get the economy moving again;
  • GET Porgera operating again, stop talking and mobilise approvals into boots on the ground on all major resource projects such as Wafi-Golpu, Papua LNG, Pasca off-shore.

And in doing so, regenerate revenues, foreign exchange and jobs plus, boost our international investment reputation which has rapidly declined in the last two years.
Our country’s economy isn’t doing well as many of you have been experiencing in the day to day living.
Performance of our economy depends very much on some of the issues that have been affected globally and I think it’s important that we appreciate what’s happening around us.
In terms of the global economy, we see that the commodity prices have returned to pre-Covid-19 high, meaning prices have returned to levels which means revenue streams coming in will be healthy.
But domestically, we are struggling to ensure the inflow of revenues we are getting from exports of these commodities are not able to maintain the growth level that we have in PNG.
Our economy declined by 3 per cent in 2020.
Our Government has predicted 10.6 per cent growth in 2021.
That’s at the back of a decline in growth of our economy of up to 3 per cent in 2020.
Quite challenging for any government, given that the previous year you had a decline and then you are projecting a growth in the coming year.