The debate on the 2020/20 national budget will rage on long after its passage in Parliament. In my experience, I have never seen a budget that has turned a weak financial situation to a critical one.
When we needa steady hand to gently guide us out of this devastating crisis, the Minister for the Economy is steering the country straight for the rocks. His logic defies economic rationale. His strategies endanger our future financial stability.
His flowery language hides the irrelevance of his measures. His attack on the messengers rather than the message reflects his lack of defensible reasoning.
I, like many of us, are asking the burning question: If the Budget was fundamentally wrong, what were the Government’s reasons?
I am certain it was not a kamikaze mission to deliberately crash the economy and abandon ship. I am sure it was not to deliberately leave the people out in the cold. So, what was it? The only reason that I could come up with was that it gave in to the powerful and rich lobbyists.
In this article, I wish to compare the Government Budget to Unity Fiji’s Alternative Budget. I want to highlight that we could still have achieved many of the goals, but with the right people focus and a responsible debt plan.
The level of spending of both the Government Budget and the Unity Budget is not too far apart.
The major difference is in the excessive deficit of the Government Budget resulting in an enormous level of debt. Why is this?
The answer is in the indiscriminate tax giveaways which favour the rich more than the ordinary people.
There is no logic whatsoever for the Government to put our fiscal position at grave risk than what it already was.
This is where you see the figure prints of powerful lobbyists. Compared to our Unity Budget, Government is borrowing $2 billion to line the pockets of the rich.
This strategy shows that Government has decided that the rich are more important than the ordinary people. Why? Is it because the ordinary people will not fund their next political campaign?
Sharing the burden
The Unity Budget suggested cuts in the civil servants pay with a floor of $30,000 with higher reduction for those earning more.
Taxpayers pay for civil servants’ salaries. Revenue is declining.
Therefore, in our view, it is not ethically right that, while 130,000 of our workers and their families are suffering and many businesses are failing, the civil servants do not carry any load at all. As a nation, it is only fair that we share the burden.
We also suggested that VAT be temporarily increased to 12 per cent but exempting essential food items which means that they are zero rated.
This is to stabilise the drain in revenue but at the same time provide relief to those affected by the crisis especially the poor.
We consider this an integral part of our responsible package. It is much more effective than the wholesale reduction in taxes.
Significant differences
Let me point out other striking differences between the Unity Budget and the Government Budget:
q While we proposed to support incomes by $1 billion, Government offers a mere $100 million.
q While we proposed to reduce wastage by $1.6 billion, Government offers a token reduction of $20 million.
q While we proposed to increase the health budget by $100 million to protect us from the second wave of the virus and improve the general level of health services, Government offers only a $47 million increase and reduces the subsidy for kidney dialysis.
q While we proposed to add another $30 million to education, the Government offers only $22 million and defers the payment of wage increases for teachers.
q While we proposed to add $350 million to priority infrastructure, the Government offers only $104 million to the same non-performing programs.
q While we believe that there are enough incentives already for investment, Government chooses to spend a lot of money to revive investment which will not be effective because confidence is low.
q While we know that tourists will not come to Fiji in significant numbers until a vaccine is found, the Government chooses to focus on the tourism sector and give away $60 million of our money to wealthy foreign tourists.
q While we believe that the solutions to generating income in the next 12 months are in promoting local industries, the Government chooses not only to ignore them, but to reduce taxes on competing products from abroad and reduce the cane payment to farmers.
q While we proposed to borrow $542 million, Government intends to borrow a whopping $2 billion in one year mainly to pay for the tax breaks he has given to the rich.
Let you be the judge of those numbers and the quality of the two budgets. The bottom lines are these.
q With $1.5 billion less borrowing, the economic impact of Unity Budget’s targeted new spending and large reduction in wastage will be much larger than the Government’s Budget.
q The Unity Budget is doing more for much less borrowing.
q Our strategy will give us more room to borrow if the crisis is prolonged.
q Very importantly, the Unity Budget would give $1 billion cash grants to the people but still borrow $1.5 billion less than the Government Budget.
Shooting down the myths
Government and its Surrogates are trying their best to wrap myths around the Budget.
- a) Myth number 1: We should support businesses first because they will, in turn, provide jobs. The textbook solution does not work in the economic conditions that we are facing right now. Businesses are in a survival The demand for their products has declined.
If Government grants relief to businesses, they will simply save it and will not employ people. The only way that we can lift demand is to provide more disposable incomes to the people.
At this time when hundreds of thousands of workers are suffering, the only way that we can raise incomes is for Government to give money to the people who then buys from businesses.
Our proposed $1 billion cash injection directly to the people is aimed at doing exactly that.
- b) Myth number 2: The Minister for the Economy said that Government needs to borrow more now so future generation can borrow less. This kind of statement can only come from one who does not understand economics and finance. Let me explain. The country has many priorities like health, education, and infr
We cannot meet all these priorities in one lifetime because we are limited by what we can afford to borrow. Therefore, developing our country is a never ending effort.
What we must do now, is to ensure that we borrow for the right reasons. Unfortunately, we are borrowing for the wrong reasons.
We have reduced taxes for the wrong reasons. There is still a lot of wastage and political expenditure in the Budget.
Borrowing for these will destroy the ability of our children to develop the country. Why? Because they will be bogged down by servicing the huge debt that we are now accumulating.
- c) Myth number 3: Most of the national debt were borrowed by previous governments.
This is simply fake news and propaganda. The national debt is now $7 billion. Debt at the end of 2006 was just over $2 billion. This Government has added a whopping $5 billion debt.
- d) Myth number 4: Government and its Surrogates claim that we can live with even more debt as other countries hold very high levels of debt compared to us.
This statement is dangerous. Debt is not something you compare casually.
The level of debt that each country can bear depends on its size and its economic makeup especially its ability to earn foreign exchange.
We cannot compare Fiji with larger and more developed countries. Our economy relies only on one industry. Our domestic market is small. We depend a lot on imports. Our exports are very few.
- e) Myth number 5: The Minister for the Economy said that the Government has built up buffers. The Minister was referring to the sinking fund for the payment of the international bonds which mature in October this year. This is not the buffer that is required.
The buffer that is needed is debt of around 35 per cent of GDP giving us sufficient room to borrow when a crisis like this hit. We had over borrowed by 15% of GDP or close to $2 billion before the crisis. Another buffer is to build up a contingency fund for natural disasters which Government has not done.
What will be the legacy of this Budget?
In my opinion, the 2020/2021 Government Budget will not be remembered as a Budget that will save this country from the most dangerous crisis of our times.
Tragically, it will be remembered as an opportunity missed to stabilise our financial position and ease the people’s suffering in the face of the greatest threat to our lives and our livelihoods.
It will be remembered as one that accelerates us towards the financial cliff that I have warned about since 2017. Our children will bear the full brunt of this lost opportunity.
n Savenaca Narube is the former RBF governor and Unity Fiji Party leader. The views expressed are his and does not reflect the views of this newspaper.
