In a repeat of last year, the 2025 Budget delivered by Papua New Guinea Treasurer Ian Ling-Stuckey outlines record spending and revenue. It also contains a few policy surprises, including a proposed reduction to the company tax rate paid by commercial banks as well as easing of a key paperwork requirement for obtaining foreign exchange.

Treasurer Ian Ling-Stuckey handed down the 2025 budget earlier in the week. Credit: EMTV

Papua New Guinea’s 2025 National Budget outlines record spending, with substantial increases for law and order, health and education, and aided by anticipated record tax revenue.

Revenue is also projected to grow at a higher percentage than expenditure, bringing the government closer to achieving its goal of a budget surplus by 2027, according to analysis provided by both KPMG and PwC.

Tax revenue is projected to increase by 13 per cent on higher commodity prices, increased business profitability and stronger tax compliance.

KPMG notes in its budget commentary that the projected K2.9 billion deficit (2.2 per cent of GDP) is K1 billion lower than in 2024, bringing a future budget surplus “within reach, at this trajectory.”

However, PwC’s analysis cautions this goal is “far from assured,” adding that “achieving the budget surplus in the short term is dependent upon continuing the fiscal discipline of the past three years, and recent reports of cash flow struggles act as a warning that execution will be challenging.”

Lower taxes on banks

While the 2025 budget “largely reflects a continuation of the budget strategy of prior years,” in the words of PwC, it does contain a few notable policy changes.

One is the proposal for a gradual reduction of the corporate tax rate for commercial banks from 45 to 35 per cent, hailed by Kina Bank CEO Greg Pawson as a “positive change.”

Under the change, banks earning up to K300 million per year will see their tax rate fall from 45 per cent to 40 per cent in 2025, and to 35 per cent in 2026. Meanwhile, banks earning more than K300 million per year will see their rate fall from 45 per cent to 44 per cent in 2025, and then by a further 1 per cent in each successive financial year until reaching 35 per cent.

Treasurer Ian Ling-Stuckey noted that there had been concern that the 45 per cent tax rate – a surprise feature of the 2023 budget – “was discouraging competitiveness” in the banking sector.

“We want better, cheaper and more inclusive banking services. This is now being adjusted, in a phased approach, so that smaller banks have more opportunities to grow, and as they do so, the higher rate on the most profitable banks can be reduced through time,” he said.

Easing of forex requirements

Meanwhile, in what KPMG called “a welcome change” for small and medium-sized businesses, the government announced it will relax a key requirement for obtaining foreign exchange.

As part of the process of making overseas remittances, companies or individuals are required to provide a tax clearance certificate from the Internal Revenue Commission (IRC) to their bank.

Previously, a tax clearance certificate was not required if the aggregate remittance to non-tax haven countries during a calendar year totalled less than K500,000. Under the change, the threshold has been increased to K1.5 million.

Record spending

In a repeat of last year, Treasurer Ian Ling-Stuckey’s 2025 budget outlined record expenditure of K28.36 billion, a 3.6 per cent increase on 2024.

The Budget, which was delivered under the title of “Securing Papua New Guinea in 2025 and Beyond,” outlines a nine percent increase in funds for law and order, including police, defence and the judiciary. In his budget speech, Stuckey highlighted a commitment to increase police wages by 19 per cent, enough “to grow the force to 10,000 by 2030.”

Despite the government’s emphasis on law and order, the budget also provides substantial increases for health, which is up 10 per cent and education, up 12 per cent. These two sectors are expected to account for a combined 26 per cent of expenditure in 2025.

However, not every budget item will increase. KPMG notes in its commentary that the government, “heeding its own advice to implement efficiency measures,” has committed to reducing public service administration costs by almost 6 per cent.

“This is the first decrease in this sector and is a positive step,” observes the team at KPMG.

KPMG also notes sight decreases in the spending allocated to transport and utilities, which between them make up 12 per cent of budget spending, or K3.422 billion.

Record revenue

On the other side of the ledger, the budget projected a record K25.4 billion in revenue in 2025, supported by a 13 per cent increase in tax revenue and a 9 per cent increase in non-tax revenue.

Tax revenue accounts for 83 per cent of total projected revenue, which KPMG credits to higher commodity prices, increased business profitability in both the resource and non-resource sector, and stronger tax compliance through initiatives from the IRC and the PNG Customs Service.

Despite lower tax rates for banks, KPMG notes that company tax revenue is expected to grow by 5 per cent in 2025. It said support would come from strong corporate earnings on the back of robust non-resource sector growth, as well as contributions from the two new commercial banks, CreditBank and TISA Bank, which came into operation in 2024.

It is also worth noting that PNG’s budget continues to be underpinned by loans, grants and counterpart funding from bilateral and multilateral sources. The 2025 Budget anticipates K2.97 billion in international funding, with the largest contributions coming from Australia (K1.09 billion), the Asian Development Bank (K504.7 million), China (K414.6 million) and the World Bank (K399.5 million).

2025 National Budget Projections

Real GDP growth: 4.7 per cent (2024: 4.9 per cent)

Non-mining real GDP growth: 5.2 per cent (2024: 4.5 per cent)

Inflation: 4.5 per cent (2024: 1.2 per cent)

Government expenditure: K28.36 billion (up 3.6 per cent from 2024 Budget)

Government revenue: K25.41 billion (up 8.6 per cent from 2024 Budget)

Budget deficit: K2.94 billion (2024: K3.98 billion)

Government debt: K64.9 billion – 47.4 per cent of GDP (2024 actual: K57.95 billion)