Nov 26, 2020 Last Updated 3:47 AM, Nov 26, 2020

The Australian Federal Budget delivered last night has increased aid to the Pacific.

An extra A$211 million has been allocated to COVID-19 response in the form of grants, agreed in negotiations with recipient countries, in addition to the $4 billion previously earmarked for international assistance. Further, a small increase in aid due to cuts in assistance in other regions has also been made.

Devex reports that PNG will remain the largest recipient, receiving A$491.1 million, although this is less than the previous budget allocation. Climate partnership programs have also see their funding reduced by A$5.7 million.

As Stephen Howes at the Australian National University writes, the COVID-19 response is being communicated separately to the main aid allocation, perhaps because “the government does not want to be seen to be providing a permanent boost to aid.”

Australia has made big cuts to its aid to South and West Asia, sub-Saharan Africa, the Middle East and North Africa. These cuts continue a trend that has been evident for some time.

Tim Costello, who heads Christian international NGO Micah Australia, says “This increased one-off support of AU$305 million for the COVID-19 response and recovery in the Pacific and Timor-Leste is good news for our closest neighbours whose economies and livelihoods are reeling from the pandemic.”

Oxfam Australia CEO Lyn Morgain has also welcomed the increased allocation, while saying it should be a permanent commitment: “It is heartening to see the Government’s recognition that this is not over for Australians until it is over for everyone. But this change of heart must be permanent.

The Australian government is forecasting a budget deficit of  $213.7bn, or 11% of GDP, for 2020/21.

As the 2020-21 Fiji Budget debate has commenced in parliament, a number of community organisations have expressed their concern about what they describe as the lack of compassion in the Budget.

“It's not only about investment attractiveness but the livelihood of people,” says Fiji Women’s Crisis Centre Coordinator, Shamima Ali. “The suffering has started and there is very little respite in this Budget. That's why we should have had real and meaningful consultations, bipartisan and civil society prior to the announcement."

“This Budget does nothing to bridge the existing gaps women and children have experienced due to the pandemic,” says Fiji Women’s Rights Movement Executive Director, Nalini Singh.

“Ultimately we know this Budget will have a trickling negative effect on the women and children and it will take them decades to recover from it. They will be the ones bearing the brunt of paying off the multi-billion dollar debts."

Foundation for Rural Integrated Enterprises & Development (FRIEND) Executive Director, Sashi Kiran is particularly worried for the welfare of ex-tourism workers. “We are greatly concerned that there is no social protection for those in the informal sector who have lost all forms of their income. Also very concerning is that farmers and fishermen who were supplying to tourism have no income and they cannot turn to any social protection. Those taxi plate owners at the airports cannot drive in any other area without being slapped a fine and they have no income from airports.”

Support for the budget

In contrast, Dialogue Fiji Executive Director Nilesh Lal is much more positive about the Budget.

“Protecting businesses from insolvency remained the most sustainable way to saving jobs and maintaining household incomes and this Budget has sought to do that. The wide-ranging incentives and concessions provided to businesses will hopefully provide the boost that some struggling businesses desperately needed and continue to keep them operational, or even thrive”, Lal said.

He believes it is critical for all Fijians “to be positive and optimistic given the fragile economic environment.”

Lal suggests pay cuts and salary caps for those paid by government should have been implemented, and that in the longer term,  “diversification of the economy needs to be pursued with much greater resolve,” particularly agriculture and other primary sectors.

Meanwhile the Fiji Institute of Accountants says the Budget sets the right strategies towards Fiji’s recovery from the “catastrophic effects” of COVID-19.

“The Institute notes that a significant portion of the Budget will be funded from external sources. The borrowing is in line with the global trends of benchmarking with other well-developed countries: we are still well placed with the borrowing ratio. The Government has announced it will be borrowing at very concessional terms,” says FIA President Nitesh Lal.

Fiji Budget wrap

Fiji’s 2020-21 National Budget will see the Government attempt to spend its way out of the COVID-19 induced recession.

“Barring drastic intervention, our economy may never fully recover; not this year, not next year, not decades on from now. That’s what is at stake; not only our economy, but our children’s economy,” Minister for Economy Aiyaz Sayed-Khaiyum said in his Budget address on Friday night.

Sayed-Khaiyum said the budget has been guided by the need to: bring back jobs (especially in the tourism sector) by bringing down taxes, retain a safety net for the unemployed and workers who have had their hours and salaries cut, and to “get Fiji working again”.

The $3.67 billion budget will see Fiji’s deficit drop to 20.2%, pushing the debt-to-GDP ration to 83.4%.

Sayed-Khaiyum says borrowing at this point is an “investment in our future” not a debt-trap.

“Borrowing now to build for tomorrow means future generations can borrow less. And a growing economy with a skilled and educated workforce generates more than enough national wealth and tax revenue to repay debt and invest in the future,” he says.  

Khaiyum says Fiji cannot rely solely on domestic consumption, and that economy's recovery hinges on holding its place in the global economy. The government is providing for a wide range of tax breaks, aimed at stimulating business and consumer spending.

The government has also tabled reforms to improve the ease of doing business.

Sayed-Khaiyum says budget will be funded through external financing from multilateral partners such as the Asian Development Bank (which has approved a US$200 million loan to boost private sector investment in Fiji), Asian Infrastructure Investment Bank, World Bank and bilateral partners.

A  third phase of COVID-relief payments has also been funded to the tune of $20 million. The Fiji National Provident Fund will again distribute this payment “because it’s fast, familiar and accessible, and its database is amongst the most reliable.”

The Minister has told Fijians that the pandemic and its impact is a test of character, and:” the single most patriotic thing you can do in this defining moment is place your belief in our people’s potential. If you are running a cashed-up business, invest now and build for the future. If you see new business, support it. If you see a new Fijian-made product, buy it. If you know a hard-working person out of work, hire them. And do so knowing that this government shares that commitment: We won’t allow our people to fall into an abyss. We believe in the great power of positivity; a positive outlook fosters not only a friendlier Fiji, but a more active economy.” 

Other key points from the 2020-21 Budget:

Social protection

  • People fully unemployed due to COVID-19 will continue to receive $220 per fortnight
  • People working reduced hours will receive $44 per fortnight for every 2 days they are not working
  • People whose salaries have been more than halved can access a one-off payment of $1100 from their FNPF General Account. The government will top up those without sufficient funds in their FNPF account
  • People who have been unemployed for more than six months will now be able to access funds
  • Free education and free textbooks will continue, school transport will continue to be subsidiesd, health care remains free, NGOs that work with government will continue to be funded

Debt management

  • Refinancing of concessional finance with multilateral and bilateral partners is underway
  • The government says it has been parking money in a sinking fund, and the $450m saved will be enough to cover the principal and interest rate on the US$200million global bonds which mature on 2 October 2020.

Government spending:

  • No pay adjustments for the civil service, except for all Permanent Secretaries, CEOs and Heads of Commissions and Independent Bodies who will see a 10% reduction in salaries
  • MPs will continue to have a 20% paycut through 2021
  • Spending on civil service overtime, meal claims and other allowances wil be reviewed and curtailed
  • Funding has been allocated for “shovel ready” sites including the new maternity wing at CWM, construction of the new Prime Minister’s Office complex, completion of new and refurbished police statons, new sporting facilities, hospital upgrades and agro projects
  • With the IFC, the government is finalising a PPP financing model to allow for construction of multi-story housing projects across Viti Levu
  • However the PPP agreement with Aspen Medical to revamp the Ba and Lautoka hospitals has been delayed for one year
  • Education sector spending- especially the Tertiary Education Loans Scheme (TELS)and National Toppers Scheme will be reviewed and tightened
  • Government missions in Washington DC, Seoul, Port Moresby, Brussels and Kuala Lumpur will be closed
  • The third cane payment of this season will drop from $85 to $70 per tonne
  • Parenthood Assistance Payments announced last year will be suspended
  • Funds have been allocated for new police stations, promotion of officers to senior positions and for expanded police recruitment
  • As has hiring of 223 intern nurses, 40 midwifes and advancement of 105 medical interns. Moving forward, inernships for doctors will be two years.

Tax reform

“In this year’s budget, sweeping tax reform is front and centre. To call it “reform” in itself is an understatement; this year represents an overhaul –– one that will be vital to driving new economic activity…we’re announcing Fiji’s biggest ever tax cut.” 

To businesses who will benefit from custom duty cuts, the Minister said, “the nation needs your generosity not your greed.”

  • Abolition of all stamp duties
  • VMS introduction will be further deferred to 1 January 2022
  • Removal of VAT reserve charge
  • Supply of residential accommodation to be VAT exempt
  • Fringe Benefits Tax deductible for tax
  • Reduction in certain tax penalties
  • Import excise has been reduced to 0%
  • Customs duty has been reduced or cut entirely for 1600 items in what the Minister calls “the duty-discount of the decade”
  • Removal of business licenses from 1 August 2020
  • Reduction in duty on hybrid and non-hybrid vehicles

Incentives

  • New incentives for medical investments including income tax exemptions for new private hospitals of between $2.5 and $10 million, investment allowance for the refurbishment , renovation and extension of hospitals and income tax exemptions for establishment of ancillary medical service centres.
  • Reduction in fees for former Fijian citizens wishing to reclaim their citizenship, plus new categories of permanent residency to encourage investment and business
  • 150% tax deduction for companies listing with the South Pacfic Stock Exchange
  • 150% tax deduction on interest paid on corporate bonds
  • New income tax and import duty deductions for investment in the business of sub-division of lots for residential or commercial purposes
  • 100% write off for the construction of new commercial and industrial buildings as long as building approval is obtained before the end of this year
  • Mandatory employer and employee FNPF contributions will remain at 5% until the end of next year. Employers who chose to pay above this will get a 150% tax deduction
  • $30m has been set aside to support micro, small and medium enterprises through highly-concessionary loan packages
  • The telecommunications servicing license fee and the data levy introduced last year will be replaced by a flat 2% revenue based telecommunications license fee.

Tourism

  • Reduction of ECAL from 10 to 5%, and raising of the threshold from $1.25 million to $3 million
  • Removal of Service Turnover Tax on all prescribed services (it was previously 6%)
  • Halving of departure tax to $100
  • 150% tax deduction for hotels and resorts that hire local artists (craftsmen, dancers, musicians etc)
  • The first 150K visitors to Fiji arriving on the national carrier will receive a travel stipend of $400

Other

  • The First Home Buyers scheme will extended
  • $200K to small municipal councils to make up for lost revenue
  • The ban on Styrofoam will go ahead
  • The Blue Town Model in Savusavu is to be launched

Government allocations (in descending order)

  • Education $450.6 m
  • Health $394.3 m
  • Fiji Roads Authority $348.9m
  • Police $200.6m
  • Water Authority of Fiji $195.4m
  • Women, children and poverty alleviation $159m
  • Commerce, trade and tourism $87.1m
  • Higher education $81.4m
  • Military $81m
  • Agriculture $65m
  • Sugar $53.6m
  • Infrastructure and Meteorology Services $30.6m
  • Waterways and Environment $15.9m

 

Fiji’s Minister for Economy will deliver the government’s 2020-21 budget today, just 4 months after an emergency F$1 billion ‘Covid mini-budget’.

It comes as the Reserve Bank of Fiji has projected a contraction of Fiji’s economy by 21.7% this year, driven largely by a 75% decline in tourism.

“This has culminated in a spike in unemployment as many businesses have scaled back or shut down operations. The retrenchment in consumption and investment activities along with the plunge in external trade will place additional downward pressure on Government’s tax collections,” the RBF said.

“Investment spending is also forecast to fall to around 12.8% of GDP, from an average of around 20% in the preceding three years. Private investment projects are likely to be halted or delayed given the uncertainty surrounding the economic outlook and resumption of global travel while there will be challenges on Government funded capital projects due to limited fiscal space.”

The ANZ bank’s research unit expects the government to announce additional stimulus measures tonight. It observes that “an overwhelmingly expansionary budget and government expenditures of close to $FJ3.8 billion would support jobs and demand in the near- to short-term while tourism is in abeyance. Further, it will underwrite future growth.”

The ANZ suggests a targeted stimulus package, “that includes a combination of cash handouts, small and local projects as well as large national infrastructure development  and education and health building would help create jobs and keep the economy in shape until tourism comes back and takes over as the driver of growth from late next year.”

For the 2020-21 financial year, ANZ Research believes revenue will fall further to $FJ1.9 billion due to ongoing weakness of the economy.

ANZ Research says a deficit of $FJ1.8 billion can be financed through an International Monetary Fund (IMF) loan under its Rapid Credit Facility and domestic borrowings through issuance of government bonds.

Other submissions

The Fiji Hotel and Tourism Association (FHTA) says targeted relief from import and excise duties and tax structures on top-line revenue for tourism operators would “go a long way to reducing overhead costs and enable better packaging options to offer real value for money that will in turn make Fiji more attractive when the borders reopen.”

FHTA adds: “Any efforts that the budget addresses that directly contributes to the ease of doing business, the cost of doing business, that incentivises growth, renovation and development would be welcomed.”

Fiji’s political parties have weighed in prior to today’s budget. Unity Party leader Savenaca Narube has proposed that the RBF print $500 million and lend it to the Government, so it in turn can offer cash incentives to micro, small and medium sized enterprises although Sayed-Khaiyum has already rejected this idea, saying it will be looking to borrow offshore.

Others speculate there will be another devaluation of the Fiji dollar, a move Narube resisted in 2009 as then-Governor of the Reserve Bank.

National Federation Party leader Professor Biman Prasad says the current COVID-19 induced crisis requires an economic summit, writing: “The Government has got to stop pretending that they are the only people with ideas” and says while no all solutions to the crisis require spending, they do need consultation and creative thinking.

In a statement released yesterday, the Pacific Conference of Churches called on all Pacific Island countries to ensure that any national budget puts people at the centre.

PCC General Secretary Reverend James Bhagwan says: “The people have a right also to full and comprehensive consultation on the budget and how it will affect them - including a just wage and representation by unions.

“The issue of representation has become glaringly obvious in the case of ATS workers (before and after COVID19), the treatment of hotel and Fiji Airways staff, the arbitrary dismissal of civil servants and the failure of the Ministry of Education over the last three years to address the review of conditions for teachers.”

A number of government ministers have already conceded that they will likely receive reduced ministry budgets this financial year. Minister for Local Government Premila Kumar says her ministry didn’t make any submissions for new capital projects, although they have requested allocations to continue with the First Home Buyers Grant, First Land Purchases Grant and Social Housing Grant.Fiji 

Suspending 20 per cent of pay for government ministers as well as all members of the Fijian Parliament formed a key part of Fiji’s COVID 19 response budget handed down in a special sitting that ended a short time ago.

Fiji’s minister for economy and attorney general Aiyaz Sayed-Khaiyum told parliament that although suspending pay for elected officials would save FJ$400,000, the government had taken the decision not to spread the pay cut down to all other civil servants.

Sayed-Khaiyum said the FJD$1 billion COVID19 response measures will also see government releasing workers' pension funds to provide cash grants to those that have lost their jobs or those sent out on leave without pay.

Cash pay out ranges from $150 to $1000 per worker, with government promising to subsidise affected workers who don’t have enough in their pension funds. Deductions by workers as well as their employers to the fund have also been reduced by between 3 - 5 per cent. Low-income workers will also enjoy further subsidies in their water and power bills.

Tax reliefs have also been offered to hotel and resort operators, as well as companies including small and medium businesses. Commercial banks and hire purchase companies are also offering concessions in the terms and interests of loans or hire purchases.

Fiji’s Ministry of Health is getting an additional $40 million, money which Minister Sayed-Khaiyum would go towards purchasing more medical supplies like testing kits, ventilators, personal protection gears and hospital beds.

Security forces – encompassing Fiji police and military -- are getting a boost of $850,000 more in their budget, which would assist them in enforcing lock downs and quarantine measures. Duty on many imported medical supplies have been reduced, while tax on diesel and petrol will increase by 20 cents per litre.

Sayed Khaiyum confirmed the $1 billion package would widen the budget deficit by 9 per cent and national debts to 60.9 per cent of GDP.

Parliament adjourned late tonight and will resume at 9:30 tomorrow to debate and vote on the COVID19 response budget.

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