Thursday, November 22, 2012

Bainimarama Budget 2013 to be Debt Funded

"Govt to borrow $253 million through off shore loans"  
Fiji Village News, 23/11/2012 

Sai's Comments: 

Details provided so far suggest that this was a Consumption driven Budget designed to placate the people of Fiji in the lead up to the 2014 Elections when it happens. It is largely about spending with the inevitable effect of raising the deficit that in turn has to be funded by more borrowing (see above headline). The effect on both inflation and per capita debt burden for future generations can only be speculated especially given the lack of transparency and independent scrutiny of government finance since 2006. Such is the secretive nature of the Bainimarama regime when it comes to appropriating tax payer money. They tell you how it is and you are expected to believe it without question.

Fiji roads to be fixed
Other than infrastructure funding allocation, there is not really much by way of investment for growth areas such as in tourism or to significantly revive the sugar industry with its paltry $15m just to survive, or the unrealistic amount directed at small business development ($1.5m) and investment promotion ($1.2m). Providing for tax free zones out in the middle of the country may not be that attractive to investors in those sectors likely to generate export earnings. It may be okay for those meeting internal demands but that can't be good for the balance of trade.

While any measure aimed at import substitution is encouraging, it is a lost battle from the start when there is a constant flood of cheap imports from the likes of China that drains local earnings. Why buy local when overseas imports are cheaper?

University students to be made farmers by Bainimarama!
Turning university students into farmers must be the dumbest idea in this Budget. As a non university graduate, even Bainimarama would probably run a mile if he were to be offered such a choice. While the sight of ready cash assistance will act as incentive, that is probably it. Individual farmers who face problems with marketing their produce or face stiff competition from corporate groups will end up with more debt than they may have wished. The idea sounds good but in practice is bound to be a failure unless price guarantee and ongoing assistance are provided.

I would have liked to see some investment for native Fijian resources with owners around provincial or tikina corporate entities. This could be in the areas of ecotourism, resource development and preservation or even in agriculture and farming. Capability development for Fijians could also enable them to form partnerships with outside investors to develop their resources.

Another possible lucrative earner would be facilities and servicing of boaties and sailors who call in for repairs in ports such as Denarau, Lautoka, Suva and Savusavu. If not already in place, some tax incentives and the provision of suitable facilities and infrastructures will go some way to generate foreign earnings in this sector.

While the tax agency, FIRCA, has been boosted with additional funding, there is still a big unknown around the revenue target projected at around $2.1 billion. As well, the cost of servicing the debt can be a lottery given the global economic situation, especially China's slowing growth trend. There can be no doubt that the current tax regime still heavily favour investors who repatriate earnings overseas coupled with the temptation for tax avoidance as a result of loop holes around zero rating and other tax incentive measures thrown in to entice investors. Given the absence of parliamentary oversight and scrutiny, there is just no way of ensuring government is not being cheated out of its fair share of tax. And going after small players such as homestay operators is no real substitution.

Korovou prison - Keeping Bainimarama occupied no doubt!