Speech by Rt Hon Mekere Morauta responding to the Treasurer’s Statement on the Economy
Mr Speaker, I will confine
my comments to Revenue, Expenditure, Foreign Currency, State-owned Enterprises,
Debt and Foreign Aid.
Revenue
Treasurer;
You said that the Government is [quote] “slightly behind on revenue”,
with revenue for the first 5 months K974 million – or 19% - less than budgeted.
A
few days later the Finance Minister said revenue was down by K2 billion – K1.25
billion greater than your figure. Who is right?
You, or the Finance Minister? And whether the revenue shortfall is K974
million or K2 billion, neither figure is “slight”, as you describe it.
Very
loud alarm bells should be ringing in your ears.
Because
first, the shortfall indicates that the budget is way off mark, bordering on
useless. And second, it shows that the economy is stuck in a recessionary gear.
Corporate
tax, GST, mining and petroleum taxes are all down. State enterprises are not
performing, paying only K100 million of the budgeted K500 million in dividends.
Departmental contributions are also lower than budgeted.
You
mention that [quote] “higher use of infrastructure tax credits may also
be responsible for lower tax collections in 2019”.
Treasurer,
there is no “may” about it. Without question, the use of tax credits has been grossly
abused in the past for glorification projects, parties for foreign visitors,
football games and conference buildings with sea views, resulting in lower
current tax revenue.
You
did not mention that you intend to correct such abuse and bring the use of tax
credits back to the purpose for which they were introduced – to be spent on
projects chosen by the Government in the areas in which the resource projects
are located.
Expenditure
On
expenditure, you say that [quote] “operational expense from January to
May was K4.5 billion, which is 3 per cent higher than expected but much lower
that the total warrant of almost K5 billion that Treasury had released”.
What
does this mean? Lower than “expected”. Do you mean lower than budgeted? If not,
whose expectations are you relying on?
And
then you go on to say that the actual expenditure, although higher than
expected, is lower than the amount issued in warrants by Treasury. Why is
Treasury issuing warrants without cash to back them up? You may as well write
warrants on toilet paper. At least toilet paper has some other utility.
You
say that Personnel Emoluments for national departments exceeded budget by 7.3
per cent and for teachers by 11.0 per cent. Why? And yet, many public servants
are complaining about not receiving their entitlements in full.
Clearly,
the budget assumptions and settings cannot be relied on.
You
say that the following expenditure categories were [quote] “controlled”:
·
Education subsidies
·
Medical supplies
·
Emergency roads and bridges
·
Provincial Health Authority
operations
·
Tertiary education study assistance
·
Provincial functional grants
To
me, these are essential items of expenditure; they directly affect the welfare
of people and the operations and effectiveness of provincial governments. Why are
these areas not fully funded? Should you not be controlling and cutting
expenditure on non-essential services, and stopping abuse, wastage and
corruption?
Foreign
Currency
You
are correct Treasurer when you say that there is a foreign currency shortage, and
that it continues to hurt businesses operating in PNG. On top of the current
shortage, there is an accumulated backlog.
Neither
selective, discriminatory rationing of foreign currencies nor short-term expensive
commercial borrowings will extinguish the shortages quickly. Yet you say that
the Government is negotiating two new loans and another sovereign bond issue.
Commercial
borrowings for spending through the budget will create additional demand for foreign
currencies, so such borrowings are only of partial help in freeing the forex constraint.
Treasurer
I suggest strongly that you consider pure balance of payments borrowing from
the International Monetary Fund or some other sources. The difference with pure
balance of payments borrowing is that the receipts do not flow to consolidated
revenue for spending.
The
receipts are held by the Central Bank and add to the stock of foreign reserves
the country has.
That,
and not commercial borrowings, will solve the shortage.
State-owned
Enterprises
Treasurer,
there seems to be some contradiction regarding the role of state-owned
enterprises.
On
the one hand you expect them to be cash cows, paying large dividends to support
the budget. On the other hand, you expect them to be [quote] “drivers of
economic development”.
To
be drivers of economic development, SOEs have to be free from political
interference; adequately capitalized by the shareholder – which is broke; and
be run on commercial lines.
The
outputs of these enterprises - power, telecommunications, water, sea and air
transport, are inputs to the private sector and essential consumption items for
the general public. So, providing these inputs affordably, reliably, efficiently
and profitably is the role of SOEs. SOEs should not be treated as mere ATMs by
the Government. Their outputs affect the cost structure of the country and living
standards.
I created
IPBC to bring SOEs under one entity, to clean them up and prepare them to play
the role I just outlined, whether owned fully by the state, sold, contract-managed,
or merged with private sector companies in public-private partnerships.
The
success of Bank South Pacific, which you mention, is exactly what was intended
for all SOEs. Similar successes can be achieved with other SOEs if reforms and
restructuring are undertaken carefully and professionally.
I
find it disturbing that the Government is now breaking up responsibility for
SOEs, taking entities out of Kumul Holdings, ex-IPBC, and putting them under
sectoral or regulatory departments – for example, Air Niugini under the
Transport Ministry, and PNG Power, Telikom and DataCo under the Ministry for
Communication and Energy.
This
will open the way for political interference; it will result in confusion of
roles and even less accountability and transparency. It will be difficult to
instill commercial discipline and adopt commercial practices. It will be
difficult to develop a comprehensive and coherent commercial framework for
SOEs.
The
Government should review this decision.
You
mention the need to revise the legislation for Kumul Petroleum. I urge you to
do this as soon as possible. The recently leaked letter to the Prime Minister
and Minister for Petroleum indicates the gross abuse and corruption in the
operations of Kumul Petroleum. Kumul Petroleum revenues are public monies and
should be paid to Consolidated Revenue, not frittered away by the Board and
management of the company.
I
suggest that you and the Minister for State Enterprises immediately demand
audited accounts from Kumul Petroleum and table them in Parliament. I also
suggest that the Government undertakes forensic investigation of the company’s
past expenditure.
Borrowings and Debt
Treasurer,
borrowings are a normal, accepted method of financing budgets. There is nothing
inherently dangerous or evil with borrowing. It is prudent to borrow, provided
two tests are satisfied:
1.
That the proceeds are not used to
fund recurrent expenditure or build unproductive infrastructure, and
2.
That borrowings are tied to specific
projects capable of creating sufficient income to service the associated debt
and make net contribution to the economy.
We
await your disclosure of the actual level of debt and the cost of debt service.
The figure should include all off-balance sheet debt, hidden in various SOEs,
NCDC and other cupboards.
Once
we have a full picture of public debt, the make-up of the debt should be
reviewed. Where possible, the most expensive loans should be refinanced and the
maturity of others extended, so that the repayment burden is lightened.
Multilateral
and Bilateral Aid
It
is disappointing that Treasury has no account of foreign aid receipts for the
year so far. It seems you are asking foreign governments and institutions to
provide the figures. How strange.
Three
things are clear:
1.
The Government is not in control of
foreign aid;
2.
The Government is not managing
foreign aid properly; and
3.
Foreign aid is not integrated into
the budget. Its use now does not necessarily reflect the country’s development
priorities.
Conclusion
Overall,
your statement highlights four issues:
1.
The non-mining sector of the economy
is not in good shape;
2.
The revenue assumptions of the budget
are over-optimistic and expenditure levels are unsustainably high;
3.
The gulf between revenue and
expenditure is widening and will result in higher deficits, higher borrowing and
increased debt burden; and
4.
The budget needs to be repaired and restructured
to be more realistic.
Your
statement indicates that Treasury is regurgitating to you the same advice that
resulted in the bad fiscal position we are in.
It
is critical that the Government act to free us from this fiscal black hole, from
corruption, waste, mismanagement, poor budgeting and over-reliance on
borrowings and on the mining sector.
A
supplementary budget is needed to reallocate the money we have now to:
1.
Protect core services in health,
education and law and order;
2.
Maintain income-generating and
productivity enhancing infrastructure;
3.
Stimulate the non-mining sector; and
4.
Clear government arrears and pay
contractors and suppliers in full and on time.
Meanwhile,
the Government needs:
1.
first-rate economic advice, and
2.
a deep and comprehensive Public
Expenditure Review:
·
to lay the framework for future
budgets, beginning in 2020;
·
to find ways of delivering services
more effectively and cost-efficiently; and
·
to lay the foundation for more
balanced and sustainable economic growth.
Thank
you, Mr Speaker.
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