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A 'poll sweetener'

Dr Neelesh Gounder
Saturday, July 08, 2017

THE 2017-2018 National Budget is about big spending promises amid a sizeable revenue shortfall all with the intention of keeping the voters happy as election is drawing closer. It is rare to have an election without sweeteners, thus, this budget is no different.

The budget speech provided a summary of major spending with main policy changes, but very little about the revenue required to meet these promises. It had a partisan spin on changes such as TELS (Tertiary Education Loan Scheme) allowance and salary increases for civil servants, but was quite brief about the new programs or reforms.

As with any budget, the devil wi­ll be in the detail. As Parliament debates the budget, hopefully big policy measures and reforms will be spread out in detail. Meanwhile, here's a take on some key issues from this budget.

Housing initiatives

First home buyers grant will receive $60 million (some arrangement with the Reserve Bank of Fiji) to assist households earning less than $50,000. This is a good initiative aimed at promoting home ownership for first-time buyers.

The worth of this, however, must be checked on the back of how successful this initiative was from the previous budget allocation. Good initiatives do not necessarily mean better outcomes for our people. Sellers, real estate agents and even banks must not view this as a compensation for higher house prices.

A partnership between FNPF (Fiji National Provident Fund) and Government will fund a housing development in Matavolivoli in Nadi which will offer different price categories.

There is one important question, however. Why does the FNPF need Government as a partner on this? Full details regarding this enterprise should provide finer points about this partnership. Nevertheless, reason for suspicion is strong in this case as Government has also been the major borrower from FNPF.

Despite these measures, the budget does not contain any meaningful affordable housing measures for low-income earners. There is no mention of any major reforms to make housing affordable such as changing how current planning and zoning decisions that impact supply as well as prices. There is also a need to evaluate the regulatory framework (such as the Town Planning Act and Subdivision of Land Act) regarding urban development and how it impacts land subdivision costs and the price of land to build homes. It is not only about making more land available by subsidising Housing Authority subdivisions, but also providing affordable land to the market.

Deficit and debt

Government expenditure is budgeted to be $4.35 billion while total revenue is expected to around $3.85b. This means Government will have a budget deficit of $499.5m.

Judging from the past few years, Government has never met its budget forecast revenue. Between 2012 and 2015, the budget forecast revenue target was never met. It was unspent allocated expenditure that kept budget deficits for these years within target.

There is nothing wrong with deficits and debt. However, a growing debt would eventually become an issue to consider. With this budget, Government debt will now be over $5b. Historically, Fiji has not experienced financing difficulties and funding debt has remained accessible. It is also technically acceptable that the current debt ratio is "sustainable" or "manageable".

However, a more important question is the impact of the debt burden on long-term economic growth prospects. Our research suggests the current debt ratio is negatively impacting long-term economic growth.

It is therefore recommended that Government and its successors implement a sincere medium to long-term plan to reduce debt accumulation.

This further highlights a continuing challenge for Government as it continues to experiment a "low tax" social democracy. Sooner or later, the limits of that strategy will inevitably give way to higher taxes to meet debt financing.

If Government is serious regarding intergenerational equity, it should bring debt levels down in the medium term to ensure future generations are not burdened by an ever increasing level of debt.

Sugar industry

This industry continues to be one of the most contentious issues in Fiji's political and economic landscape. This budget continues existing measures such as cane access roads ($6m) and fertiliser subsidy ($15.4m). Others include weedicide subsidy ($6.3m) and cane cartage from Penang to Rarawai ($5.1m).

Combined, these measures will have very little impact on the cost of producing, harvesting and delivery of sugar cane. Even if the farms incomes improve at the margin after taking into account costs of production, this will hardly improve incentives for farming.

It should be apparent to stakeholders by now that policy tweaks will not work if the fundamentals within the industry are weak.

The nature of property rights governing the use of land has been one of the major factors for the decline of the industry. Until there are major reforms related to land use and availability, sugar cane or agriculture in general will continue to be unattractive for investment, both capital and labour.

Budget documents mention the Land Bank as a reform, but it is unclear at this stage how land that is deposited under the Land Bank changes the notion about land as a bundle of rights.

Additional remarks

For any government, the budget is an opportunity to reclaim the political rhetoric. In the coming weeks, government ministers will begin selling the budget in and out of Parliament. Although "a good budget" is in the eye of the voter, Government will not find this budget easier to defend compared with some others in previous years.

As usual, the political rhetoric of the budgets will disappear in a few weeks, but the challenging task of effective implementation will linger for beyond the next financial year.

The burden is now on the Opposition to dissect on policy changes when responding to the budget. The Opposition owes the public a thorough analysis of every aspect of this budget to allow the voters a greater understanding of how the Government plans to utilise their money.

All in all, this budget does not continue to accelerate reforms from previous years to continue the growth momentum in an inclusive manner while at the same time consolidating the fiscal position.

Reforms are systemic changes that contribute to productivity and growth, and not all policy initiatives/changes are reforms. Deeper reforms are required in areas related to land (property rights), trade, local governance, education, health, housing affordability and business environment. The Government may have intentionally left some of these for 2018-2019, especially if they have plans to have elections after June 2018.

* Dr Neelesh Gounder is senior lecturer in economics at USP. These are the views of the author, and not of The Fiji Times or of USP.








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