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June 21, 2021
Business News Politics

Government Predicting Tough 2020 Recovery

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The Government  is projecting a  tough year in 2020 as it contends with a shrinking economy on several fronts and a K4 billion deficit in next year’s budget.

Treasurer Ian Ling-Stuckey, yesterday, handed down the  K18.7 billion money plan whilst issuing a scathing attack  against former Prime Minister, Peter O’Neill, for  what he described as the ‘mismanagement of the PNG economy.’

“Mr. Speaker, why does this nation have a massive budget deficit?  The honest answer is a simple answer. PNG has the largest budget deficit because of the economic mismanagement,  the irresponsibility and the deceptions of the former  Prime Minister, Peter O’Neill.

“Every year, the average living standard every person went backward by over K100 per person.”

Treasurer Ian Ling-Stuckey is not  expecting  2020 to be flowery for Papua New Guineans.   In the  budget strategy paper he  painted a bleak picture of an economy depressed and struggling with debt.

The budget, he handed down,  that comes with a 50 percent cut to the Tuition Fee Free Education (TFF) policy,   stringent debt servicing measures, tighter control on the government salaries and higher taxes.

Citing the cuts to education, the Treasurer said education is a shared responsibility and  the funding resources would be directed towards higher education  costs  which are a lot more burdensome to  Papua New Guinean families.

The Government has been careful not to pressure obvious revenue like the goods and services tax and the personal income tax.

But it  introduced a 25 percent ‘sin tax’ on tobacco and alcohol. It maintains the 100 percent tax on imported vehicles.  Other tax reform measures include a simplified tax regime to help SME growth.

In its post budget analysis, international consulting firm, KPMG,  highlights that export  tax revenue  is expected to be boosted to K425 million  as a result of increases to excise duties  on the export of unprocessed logs.

Commenting on the budget,  former treasurer,  Charles Abel  cautioned the government over the possible substitution effect as a result of the tax increase on alcohol and tobacco.
“We have a massive problem with illicit trade. One of the main reasons is because they are so highly taxed. This means when you import illegally and don’t pay the tax you can sell at a huge profit. So what happens is that legal sales by compliant manufacturers goes down, taxes go down, jobs go down, and unregulated activities go up.

“As Treasurer, I slowed down the rate of excise increase (not stopped altogether) and revenue from tax collected went up and illicit trade went down. There is an incorrect belief that by increasing taxes on these products revenue will go up and consumption go down. Experience has shown the opposite,” Mr. Abel said.

The treasurer has also highlighted, PNG’s employment market is not looking good in 2020.

He  reiterated estimates by the World Bank and the Asian Development Bank   that say that formal job creation dropped from an average of 15,000  per annum to 10,000 over  five years.  The Government will have to pick up the pieces and gradually raise that figure to an acceptable level.

The Opposition is expected to issue a budget response  when parliament resumes.

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