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Leaders must take responsibility to address economic woes

Buai-meri-paintingBUSA JEREMIAH WENOGO

GIVEN that some ugly fiscal numbers are stacking up against the O'Neill-Abel government, it is expected tough decisions will have to be made as the new regime puts together a supplementary budget as well as the 2018 national budget.

The question in people’s mind is where the adjustments will hit in the formulation of these budgets.

It is obvious that tough decisions have to made with flagship policies such as free education and primary health care, even though an additional K900 million loan has been sought from the Asian Development Bank.

Funding for major infrastructure work looks like being scaled back and the K10 million district service improvement program needs to be reconsidered.

The two budgets look set to be very unpopular. If this is so, it will be interesting to see the reaction from the public given all the criticism surrounding the formation of this government.

For the budgets to be successful will require the government to put aside its ego and face the reality that all is not well.

It will have to bite the bullet to bending point to get the economy back on its feet.

This is no time for denial; it is time to admit the wrongs then right the wrongs.

If it is true as rumoured that the government plan to increase personal income tax by 50%, it will signal that the government has run out of reasonable options to source funding to keep the economy afloat.

Normally the government resorts to revenue sources like company tax, royalties, dividends from state owned enterprises and other investments to support the budget.  Other revenue sources have been compromised by modest commodity prices.

It can also borrow domestically and internationally - an option realistically no longer feasible given the high debt levels that already prevail.

If the government hikes personal income tax by 50% this will be a worrying sign especially as only about 20% of the PNG's population is formally employed and pays this form of tax.

If the government decides to increase the goods and services tax, it is likely it will be met with stiff opposition from the public given the entire population pays that tax. With public perceptions over the handling of the general election so negative, such a move would be very unpopular for a government that has such little political capital.

For the extractive sector, any move by the government to boost tax returns could turn into a case of "biting the hands that feeds you". If the government removes tax holidays for companies operating in this extractive sector we may see a drop in production as well as shedding of workforce as companies scramble to readjust their books.

As a revenue-raising measure, the government could also sell off shares it owns in petroleum, mining projects and other enterprises to support its budgets. This would imply the government retreating to its historic role of regulator and service provider.

The need is now more urgent than ever for this government to tap into the informal economy where an estimated 80-85% of the total population strives to generate income and put bread on the table.

This informal economy is crucial to the growth of the small-to-medium sized enterprise (SME) base of the formal economy. The government should not just focus on implementing reforms focused on assisting SMEs but put in place measures that will ensure that informal economy participants to transit into that SME sector.

This will ensure they contribute to diversifying the economy and broadening the tax base. The bulk of Papua New Guineans are in the informal economy and start-up SMEs and this is where the focus of government’s economic growth initiatives should be.

While the government will come up with certain revenue targets, it equally needs to invest build the capacity of the Internal Revenue Commission to ensure effective compliance so tax evaders and tax fraudsters are held to account.

It makes no sense that the government expects the IRC to step up its game when it does not possess the means to achieve such expectations.

Given the mess the economy is in, it is important that the government take full responsibility and ownership to of the issue. The buck stops with them.

They should not be passing the bulk of the buck to citizens most of whom don't have savings and can't afford to buy decent food or live in a decent home with their families.

Political leaders should take a pay cut, sacrifice their perks and privileges and honestly declare their business interests and assets so that tax is properly imposed and a good example is set.

The last thing this government will want to do is to lay off public servants and see private sector workers lose their jobs.

If there is a time to lead, it has arrived and effective leadership qualities now need to be on full display.

The nation is watching. Leaders must now take responsibility for our economic woes.


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Lindsay F Bond

If any good is to come of what may be sterner measures to address the 'economic woes', it might come by way of economic realization among the populace more broadly, as to just what it was that the PNG Government has been doing in the past six (or more) years.
Sadly the economic pain is likely to yield disastrously upon a great many and worse for those seeking medical treatment.
Hope is that present promises of reviews and improvements are implemented.

Jeff Febi

Five ways in which the PNG government could increase its revenue:

1. Cut the district services improvement program to K1 million

2. Abolish the provincial services improvement program

3. Review tax holidays enjoyed by big companies

4. Increase tax on the export of raw materials like logs, fish, gold, LNG, oil, coffee, cocoa and other agricultural products

5. Increase income tax on incomes above K50,000

Michael Dom

"Such a move would be very unpopular for a government that has such little political capital."

Assuming that the O'Neill-Abel (a new adjective) government actually care what the people think.

I don't think so.

They'll do whatever they're O'Neill-Abel to do.

Barbara Short

Excellent comment. Thanks, Busa.

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