Interview: Dairi Vele
How would you characterise budget priorities in light of the current fiscal and economic situation?
DAIRI VELE: We have had the same budget priorities over the past seven years. When you have a long period of growth and a short period of hypergrowth, the culture of largess starts to set in. Papua New Guinea fell into this trap of overemploying public servants, expanding from 80 agencies to over 125, and from 70,000 government employees to 130,000. As such, our priorities have been to try to get a handle on expenditure and ensure we are achieving the best bang for our buck in terms of cost of service delivery. We need to focus on the ecosphere that allows for prosperity – making sure our population is educated and healthy, and that we build the necessary infrastructure. Luckily, because we don’t have legacy investment, we have an opportunity to utilise technology to leapfrog several generations.
What is the most viable way of raising funds in the short term to finance immediate priorities?
VELE: In terms of expenditure, people need to understand that the big PGK15bn ($4.8bn) budgets of the past years are simply not there anymore, which is okay because a reasonable budget for PNG now is around the PGK11.5bn-12.5bn ($3.6bn-4bn) range. Understanding what it means to go through a cutting exercise is not easy to grasp after 15 years of growth and four years of surplus, but is a necessary evil in the current situation.
On the revenue side, the number one issue is simply compliance. For example, the corporates and businesses that are registered and pay taxes effectively have to fund 80% of the revenue envelope. In essence, these companies are overtaxed because they are the main source of revenue. Therefore, a priority for us should be making sure that everyone who should be paying tax is paying tax. This mismatch becomes obvious when you see 20,000 applications for a business, but only 2000 applications for a tax file number. We didn’t have to worry about it before because we were earning billions in tax revenues from petroleum, but now we must be more prudent, and we are working through the exercise of increasing tax revenues by widening and deepening the net. We are also finding ways to utilise technology through e-filing to streamline and standardise the tax collection system.
How is the Treasury reconciling fiscal consolidation efforts with the economic boost generated from government spending and investment?
VELE: Our capital spend should be counterpart funding for concessional funding. This is how small economies grow to medium-sized economies. Unfortunately, when oil prices were high we decided to pay for everything ourselves, which is an expensive way to build a nation. We are discussing a $300m facility for health with the Asian Development Bank, which would be the largest injection into the sector in our history. We are also discussing another $300m-500m facility with the World Bank for general budget support. Where we are as a nation enables us to access funds and facilities we were not able to before, which is tied to reform programmes that suit us. Therefore, all spending going forward is based on reforms that will work towards achieving the country’s development goals.
Jobs are the number one priority, and the best way to achieve this is through large-scale projects, so people can be part of a greater workforce. Our land tenure issues have been a stumbling block, but we do have some of the most advanced structures in dealing with landowners. Infrastructure spending has one of the biggest knock-on effects. The current government is very focused on roads, and the economic justification of connecting the country is sound. In the past we used to have different countries and agencies building roads all around PNG, which created a mismatch in standards and was not very efficient. The spending now, through the budget and through multilaterals, enables us to create jobs and cheaper roads through one programme.
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