Biman Prasad vs Finance Minister

Minister for Finance Aiyaz Sayed-Khaiyum has produced a Budget for the people. It is positive and creates conditions for people to grow economically. Opposition Finance spokesperson Biman Prasad calls it
18 Nov 2015 09:33
Biman Prasad vs Finance Minister
Attorney-General and Acting Prime Minister Aiyaz Sayed-Khaiyum.

Minister for Finance Aiyaz Sayed-Khaiyum has produced a Budget for the people. It is positive and creates conditions for people to grow economically.
Opposition Finance spokesperson Biman Prasad calls it “a deceptive budget of a confused government”. Mr Prasad says there is no clear theme or direction. VAT, he adds, is reduced for the rich, but the poorest people will pay more VAT.
But if the Budget is read in its totality, Mr Prasad will be able to see the bigger picture. The Government focus on infrastructure is essential. It’s a pre-requisite to robust economic growth.
Roads, water and electricity are crucial for people to become participants in economic development.
The excerpts below show a Government thinking about the future and an Opposition caught in a time warp.

Sayed-Khaiyum: In developing the budget, a government must make hard decisions.
It must balance many worthwhile needs against economic reality, in the same way every family and business in Fiji manages its finances.

Prasad: A deceptive budget of a confused government. It has no clear theme or direction.
It is all over the place or a political merry-go-round.

Sayed-Khaiyum: The IMF has remarked that our debt-to-GDP ratio is healthy, that we are using debt prudently to build infrastructure that will generate income and build the economy. Our overall debt is going down, which is one factor that allows us to reform our taxation system.
Economic growth has also resulted predictably in increased revenues.
Government revenues have risen from $1.4billion in 2006 to a projected $2.6billion in 2015 (apart from asset sales).
Government’s broad fiscal policy remains focused on growing the economy through investment, while at the same time ensuring fiscal sustainability.
This strategy ensures that resources are adequately provided towards priority and growth sectors such as infrastructure, education, health, agriculture, housing and social protection.
At the same time, targeted private sector participation and investment is supported and encouraged through a competitive and investor friendly taxation regime.

Prasad: Government debt is a worrying problem. Between 2006 and 2014 Government debt rose by $1.136billion — nearly 40 per cent. This does not include Government guarantees for statutory bodies and Government companies. These are contingent liabilities. They are not budgeted and accounted for. If any of these guarantees were called on, Government debt would again go up. These liabilities were $2.4billion in June 2014 — that is, another 30 per cent of GDP. These contingent liabilities are real exposures.
Government debt is now around 50 per cent of GDP. This is about 10 per cent higher than it should be in a well-ordered economy. In many countries it is of course worse than this. But we should not be measuring our economic performance against those countries. Total debt increased from $ 3.7billion to an estimated $4.4billion. This means that every year we could be paying more than 30 per cent our total revenue for debt repayment.
For every $3 we raise in revenue, we pay $1 to our creditors in interest and debt repayments. That is money that is denied to the people for health, education and other services. So when we borrow money, we must know that we are borrowing for good purpose and not just to pay for another of the Minister of the Finance’s slogans. When are we going to pay back this debt? And when are we going to stop the spending party?

Sayed-Khaiyum: We will continue to develop our infrastructure—our roads and jetties, airports and seaports, electrical grid and potable-water supply. Failure to fully develop these basic resources will only hold our people back. But every dollar spent in these areas repays us many times over because they make such a huge difference in people’s lives. They give people access to markets, information, better health, education, employment and create sustainable livelihoods.

Prasad: This Government is spending hundreds of millions of dollars on roads. Roads seem to be its particular obsession. Roads are no doubt a good thing. But so too is education, health and social welfare. My main concern about the obsessive spending on road works is that no-one knows how well the money is being used. In the 2015 budget a total of $653million was allocated. Actual expenditure to date is only about $237million. Does this mean that the balance of $416million will be used in the fourth quarter. In fact the Minister for Infrastructure should provide a detail breakdown of how the balance will be spent and what sort of oversight we have to ensure that we are getting value for money. It is almost certain that a lot of funds are being wasted towards the end because of the haste to spend it. The Auditor-General’s report for 2014 has just been published. In it the Auditor-General gives only a qualified opinion of the accounts of the Fiji Roads Authority. Why? Because the FRA’s own information about its road system is so poor that its accounts cannot be made accurate.

Sayed-Khaiyum: Tax avoidance- and in some cases, outright tax evasion — is a problem that we are going to attack aggressively, by collection and by reform. When privileged people and corporations don’t pay legitimate taxes, they put more burden on the poor and the working class. This is not fair! Government will not tolerate it, and we as a people should not tolerate it.
Examples will be given of ways that individuals and companies have simply been ducking their civic responsibilities. For example, a very well-known company that owns major grocery outlets throughout Fiji and other businesses in their pool of businesses across Fiji has paid no taxes for the last six years. A major grocery outlet that is present in almost every town in Fiji has not paid any taxes for six years. Yet it is inconceivable that this company has made no profits. By not paying taxes, company management is denying services and opportunities to ordinary Fijians—the very people they need to sustain their business.
We have also learned that a major accounting firm—in breach of its civic responsibility and the ethics of the accounting profession—has helped its clients make exaggerated claims of allowable expenses. This has to stop.
FRCA will develop a Tax Agents Code of Ethics for tax agents to ensure that everyone understands the rules and the conduct required of tax agents. Then there will be no excuse for dishonesty. And agents will be held accountable for the advice they give their clients and their companies.
We also know that in the past, when Government reduced duty on goods, merchants often have not passed those saving on to customers. They broke faith with their customers, taking their reduced cost as something to boost their income. Government doesn’t reduce duties to benefit a few merchants; it reduces duties to end economic distortions, to give consumers greater choice, to boost economic activity and opportunities and to put more money in the hands of the ordinary Fijians.
We are going to confront these practises, and we will enact responsible and comprehensive measures to change this selfish and pernicious behaviour. We are also going to use technology to do a better job of collections.
Much income goes unreported through the informal economy or through simple tax evasion because we have lacked a credible system to encourage or compel tax compliance. We will invest $5 million in technology for the Ministry of Finance and FRCA to ensure better reporting and compliance, including a system to link FRCA to cash registers so that retail and wholesale transactions will automatically and in real time be reported. It is only fair.

Prasad: We may have become a low trust country. I could not help but feel sadness at the tone of the budget address. The Minister lectured business people and accountants as though they were crooks. Now, he wants to look inside every supermarket cash register. He is threatening business people who do not pass on VAT reductions to consumers with fines and imprisonment. Is this a Government that believes in people? It only believes in people who do not answer back.
The Minister talked constantly about what previous governments had not done and what needed to be reformed. He has conveniently forgotten that for the best part of the last 10 years, his government has been in power.

Sayed-Khaiyum: VAT was instituted in 1992 through the VAT Decree, and some shops have long been able to manipulate VAT returns by mixing accounting of VAT and non-VAT items. By having exemptions to VAT, we also create a regressive taxation system. In other words, if the logic is that VAT should be exempt on certain items because you want to protect the less well-off then it does not work because the rich also don’t pay VAT on those items.
What is fairer and financially sound is that assistance to the needy is targeted. We will propose to this Parliament, legislation to reform the VAT system. This will make taxes more equitable and less burdensome while producing more revenue for Government to provide essential services. Under this legislation, the VAT will be reduced from 15 per cent to 9 per cent, and exemptions that currently exist on rice, cooking oil, fish, flour, tea, powdered milk, kerosene and prescription drugs will be eliminated.
This reduction in VAT will reduce overall costs to citizens as measured by the Consumer Price Index through the RBF by 4.5 per cent, and it will reduce the overall cost of food to all Fijians.

Prasad: The key revenue measures in the 2016 Budget is a strange and contradictory smorgasbord. From the viewpoint of fiscal management they make no sense at all. Indeed, I can only think that the Minister of Finance is looking for another slogan – “I lowered VAT more than the NFP promised.” This too would be a fine slogan, but in return one is expected to trade in one’s sense of rational logic.
We welcome the reduction in VAT. It is no secret that NFP campaigned vigorously in the 2014 election to reduce VAT from 15 per cent to 10 per cent. But here is the funny thing. Every argument that we put forward in favour of VAT reduction was rubbished by the Fiji First Party at the time.
The Finance Minister was also at the forefront to condemn any reduction.
Clearly the Minister for Finance has had a change of heart. Of course, we are happy that the Minister of Finance is actually trying to learn something from the Opposition. That it is not a bad thing in a democracy and VAT which applies to everybody, is not something we choose merely for political upmanship. But it seems that the Minister of Finance is not a very good student. He obviously slept through some of the lectures. Because he has forgotten a critical element in the policy mix, which is that when you remove zero-rating from essential VAT items, you must give extra financial support to the poor.
There is good, simple economic logic for removing zero-rating from essential food items and prescription drugs. It does simplify the VAT collection process for FRCA. And it means that those of us who can afford to pay VAT on those essential items — like the Minister of Finance and me — will pay, and Government will get more revenue. But it leaves out the poor people for whom the zero-rating was originally intended. What will happen to them? A person with a wage rate of $4 per hour working for 50 hours per week will earn $200 dollars per week, $800 per month and $9600 per year minus $768 FNPF contribution, the net per week is $170 and if that person is a single earner in the household of 4 then it is estimated then this household will spend about 60-70 per cent of its income on basic food items whereas anyone earning over $20,000, they probably spend only 8-10 per cent on basic food items. A dollar is squeezed, stretched and pulled further when there is less of it in the first place. For Fiji’s population the majority are in that income bracket. This is Government’s gift to the richest people in Fiji, while it takes away more money from the poorest people. The VAT reduction is a slap in the face for the poor.

Sayed-Khaiyum: One of the most important institutions acting in the interests of all Fijians is the Fiji National Provident Fund (FNPF), which invest the funds deposited by workers in order to pay out retirement and disability pensions. FNPF is recognised internationally for its excellent management, and we are proud to say that just on Monday, FNPF was awarded the Certificate of Merit by the International Social Security Association in recognition of the IT Reform supported by the FijiFirst government. FNPF has made all the right reforms to ensure that depositors’ funds are safe and that the value of its assets grows swiftly. FNPF’s investment income was $252.8million in 2014 and stands at $302.7million today, an increase of 20 per cent. That is the highest ever in the Fund’s history, and that is good news for all Fijians.

Prasad: Government together with FNPF should urgently review some of their decisions and find ways in which pensioners who lost out be compensated. A legal contract was violated. Why is government not appointing workers and employers reps to the FNPF Board?
About 80 per cent of Fiji National Provident Fund members retiring over the next four years will have balances of less than $50,000. The 2015 Annual Report shows that only five per cent opted for pension. The recent announcement for increased rate for term annuities is a joke and quite simply, criminal. Why would any retiree want to opt for any of those options? In fact with the current pension rate most retirees would opt for lump sum payment. A large majority of these pensioners would not be able to make any significant amounts of investment with less than $50,000 and in fact would fall below poverty line in the years to come. In the end government would be burdened with the responsibility of looking after many of these people.
I suggest that government appoint a joint parliamentary committee look at the operations of FNPF and have a thorough discussion with all stakeholders, especially members to see how best we can restructure FNPF and relook at the retirement options, use of FNPF fund by members for housing and social development. FNPF should not be used to support this Government’s overzealous operating expenditure. If anything FNPF should be investing in housing development projects and help increase home ownership of its members. I also call upon the government to immediately change the board of FNPF so that representatives of workers are appointed on the board. This government cannot ignore the wishes of the members of FNPF.

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