The Papua New Guinea Government needs to look at raising more revenue, as well as keeping its expenditure under control, according to Dairi Vele, Secretary of the Department of Treasury.
Treasure Secretary Dairi Vele
In a frank address to a joint University of Papua New Guinea/Australian National University event in Port Moresby, Treasury Secretary Dairi Vele outlined some of the budgetary challenges facing the incoming O’Neill Government.
Vele said the PNG economy is recovering from its economic shocks and inflation is moderating below 7 per cent. But, he said, total revenue is projected to be lower by K514 million from 2017 Budget estimates, and total expenditure projected to increase by K430.1 million.
The Mid-Year Economic Forecast (MYEFO) also has PNG’s debt at 34.9 per cent, up from 32.4 per cent in 2016.
Cycles
Vele said PNG’s debt ceiling is an important discipline when dealing with volatile economic cycles.
‘When the revenues came in from the boom, we started focusing on spending and not making money.’
‘People have different views but I think that 30 per cent for a country growing as fast as we are, it is a very low ratio. The good thing about having a 30 per cent limit in good times is that it gives you discipline. When times are tough it takes away your optionality.
‘We are a price taker, not a price maker. The price of oil and gold is decided in markets far, far away. We just live with it.’
PNG’s real GDP (orange), real non-mining GDP (blue) and world GDP (dotted line). Source: Department of Treasury, Macroeconomic Policy Division
Revenue
Vele said the other side of the ledger is to improve revenue collection.
‘We need to start focusing on revenue. When the revenues came in from the [LNG construction] boom, we started focusing on spending—and not making—money.
‘It blows my mind that in any one year we can have 20,000 business registrations and then we only have 2000 applications for tax file numbers.’
‘We have a medium term fiscal strategy, which guides our spending habits. We have got a medium term debt strategy to focus on how we are going to fund our spending habits.
‘But we don’t have a medium term revenue strategy.’
Tax
Vele said it is important to be ‘clever’ about how taxes are raised, however. He said there are deep systemic problems with tax collection in PNG.
‘It blows my mind that in any one year we can have 20,000 business registrations and then we only have 2000 applications for tax file numbers.
‘There are all these shops and retailers popping up everywhere. I can assure you none of those people are paying tax.’
Vele pointed to the fisheries and forestry sectors as especially problematic.
Expenditure
Vele says PNG will be better positioned when the next resource boom comes, but said government is expanding too much.
‘We went from having something like 70 organisations to 125 different offices, each with a Managing Director, each with a board, each with a minister, each with an executive officer. It can’t continue.
‘Over the years, we were supposed to cut. In some sectors, we have six different offices: I don’t know what they are doing. In the old days, it used to be one department and one office.
‘We need to deal with this. It is in the provinces where the problem is. We can’t keep track of how many teachers and how many health workers there are.’
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Something should be done to address unemployment as well because currently the salary/wages tax is becoming a burden because the ratio of employed to unemployed is a huge difference which results in; tax wise, you have 1 worker paying tax for 20 non-workers (not actual figure but an example) 1:20 hence the Government is putting a real burden on the few who are working. If we have more people employed, more people pay tax, then the margin is spread and slight increases are acceptable. But to say there has never been a revenue strategy since this Government took office is unacceptable.
Tax revenue collection, and methods used needs to be strengthen by the IRC. How tax is collected needs to be monitored and accounted time after time. TIN, now the IRC is located in IPA, but I don’t think that will very much solve the issue. The best way I would propose is when business registration number is generated, that TIN must also come together simultaneously (single registration). IRC has to work with Banks, set up systems in every shop for automatic tax deduction at a point of purchase. We need more work to combat financial terrorism and other anti money laundering.
Maybe when the EXXON deal is complete and they finally obtain their studies from the natural gas survey, the payment from them should be substantial. (from the Inter Oil fields)
No one ever taxed their way to prosperity. Save first then spend.
Good comments by Secretary Vele on tax revenue leakage and addressing non compliance including developing robust revenue strategy. In addition I would strongly recommend urgent attention to enhance border control capabilities and enforcement strategies to STOP illegal trade. The rogue traders significantly benefit from evading government taxes. And there is a growing international concern that the illegal traders fund organised crime including money laundering, terrorism and smuggling. Lastly sustainable tax revenue and compliance strategy including reasonable and fair excise regime will help stop illegal trade. Let’s join hands with the PNG Government and Treasury in building at better and economic viable PNG.
[…] Under the decentralization program in the 1980’s the public service has grown but without tangible outcomes. I suggest a systematic and thorough functional review is carried out to determine what each office or department is doing. The PS reform process is a long drawn affair and often leads to controversy because it is tied at arm’s length to political interest of MPs. In recent times the Minister of Public Service is thinking of introducing time book for public servants to sign in-out. This method will not improve the situation. A better alternative is to make managers (CEO, Secretaries, FAS, AS, DAs, etc) responsible and accountable through Contracts & Performance Agreements. Secondly, strengthen the PSC to evaluate Performance Agreement and Contracts. Third, rapidly move to e-governance to cut cost on the number of personnel on the payroll and reducing emoluments…etc…..There is more to the preparation for reform to save taxpayers funds to invest in essential services like buying drugs for the sick, and to buy school materials for children’s learning.