Heavy burden on Fiji

THE rise in the cost of living imposes a heavy burden on the people of Fiji especially the poor, unemployed and lower paid workers.

We can clearly see the signs in the urban and rural areas that life is very difficult.

Sources of incomes are scarce.

The unemployment rate among our youths is very high.

The number of roadside stalls and people selling door to door are increasing.

On the cost side, everything is expensive.

The same basket of goods now costs three times more compared with 2006.

The purchasing power of our income is eroding.

The cost of school items for our children is rising.

Owning a home is now out of reach of a young family even with double incomes.

Life is hard.

Mothers and fathers are finding it extremely difficult to feed their families, put a decent shelter over their heads, send their children to school and keep them healthy.

These are the basics that give the mothers and fathers the dignity of life.

Higher prices are not the result of only one or two decisions. The higher cost of living can be traced to poor economic and financial management.

Government will say that our long-term inflation rate at less than 2 per cent is moderate by international standards.

But it is misleading to focus on the aggregate level.

Rather, we must look at the components of the Consumer Price Index (CPI) that are driving up prices.

Exchange rate

We buy most of our needs from overseas.

Therefore, inflation that we import comprises about 60 per cent of our inflation.

The exchange rate is the biggest cause of the higher prices that we pay for our purchases from abroad. The devaluation of the Fiji dollar in 2009 contributed to the higher prices that we are facing now. Since 2009, the Fiji dollar has continued to weaken which has further raised our cost of living.

Cost of doing business

The increase in the cost of producing goods and services is passed on to consumers through higher prices.

In a past survey, Fiji was the least cost country in the Pacific.

But through poor economic management, our costs are rising rapidly and soon we will overtake other countries. The people are paying through the high cost of living for our low level of productivity and the heavy handedness of government intervention in the economy.

Wages

Wages are our major source of income but also drives up the cost of production. Raising wages without proper productivity basis will lead to inflation which erodes the purchasing power of the wage increase. Good economic management will need to strike the right balance between wage increases and productivity to avoid a wage-price spiral.

Indirect taxes

Another important factor that drives up prices is direct taxes like VAT and Customs duties.

The decision by Government to increase VAT on essential food items from zero to 9 per cent has a lot to do with the higher prices that we are paying for these items. This is a whopping 1000 per cent increase in VAT on items that we buy most of the time.

At the same time, Customs duties are too high for many products that we do not produce here in Fiji.

Direct taxes

While Government boasts that it has, on one hand, reduced corporate taxes, it does not reveal that.

On another hand, it has imposed other taxes on companies.

These additional taxes are simply passed on to consumers to pay.

Barriers to supply

Fiji’s economy faces many barriers to supply which we have not dismantled over many years.

Some progress has been done but it is clearly not enough.

We need to lift the efficiency of our supply chain.

The solutions to controlling prices are therefore obvious:

1. Better management of the economy to narrow the gap between the rich and poor;

2. Better management of public finance;

3. Implementation of reforms that make the economy more efficient; and,

4. Review of the taxation system.

Unity Fiji will announce the details of the measures that we will take on the four points above in our manifesto.