The biggest mistake made by the FijiFirst government was reducing VAT from 15 to nine per cent, says prominent lawyer and Fiscal Review Committee chairman Richard Naidu.
He said government was deprived of billions of dollars in revenue as a direct result of tax reductions — a “people pleasing policy.”
He said this during an interview with The Fiji Times online portal The Lens@177. “Some of the key lessons that we learned in the National Economic Summit was that the government is just seriously underfunded,” Mr Naidu said.
“And I think the biggest mistake that was made was, back in I think 2016 or thereabouts, VAT was reduced from 15 per cent down to nine.
“That was obviously a people pleasing sort of policy.
“It was allegedly to put more money in people’s pockets so that they would spend more and invest more,” he said. He said the policy trialled in the United States 40 years ago was unsuccessful.
“They called it supply side economics and it failed. So, I don’t know why the government thought that it would be different here.
“What happened in the end was that over the next sort of six or seven years, we really deprived the government of billions of dollars in revenue as a result of that tax reduction.
“There were other tax reductions like for example, lifting the income tax threshold from $16,000 to $30,000. That also cost tens of millions of dollars.
“In the end, people have got to have essential services. They’ve got to have education, they’ve got to have health, roads, water.
“And what has happened in the last six or seven years is that those services have deteriorated.”
Mr Naidu said the economic fallout from FijiFirst’s failed economic policies were evident – underspending in health by $100 million a year for the past five or six years, Water Authority of Fiji in need of $800m over the next five years to fix crumbling infrastructure.
He said COVID could be blamed for some of the debt, but government deficit was already there before COVID.
“Now when you are trying to provide services to people and you’re not collecting enough money, all you have left to do is borrow. You are going to hit the wall sooner or later. And that is where we are at. We have hit the wall now.”
