Tongan economy waiting for a revival [1]
Saturday, July 4, 1998 - 10:40. Updated on Friday, January 15, 2016 - 14:01.
From Matangi Tonga Magazine Vol. 13, no. 2, July 1998.
From the House by Pesi Fonua.
Since the Tonga Legislative Assembly began its 1998 session on May 18, it has yet to put together a package to revive the Tongan economy. During the past three years the economy has experienced negative growth, a decline which is expected to continue unless an aggressive revival program is put into place soon.
By the end of March 1998 Tonga’s Foreign Reserve dropped to a low of $20.9 million, which was enough to cover about 70 days of imports. Some business people feared that if the economy continued to decline the World Bank might have to step in and bail Tonga out, by forcing the introduction of the economic reforms, which our political leaders are either reluctant or slow to put into place.
At this very difficult time, it is noteworthy that two of Tonga’s Members of Parliament are former Ministers of Finance: Hon. Mahe ‘Uli‘uli Tupouniua, the Tongatapu no. 2 People’s Representative; and Hon. James Cecil Cocker, who is now the Minister of Works.
In his budget speech the current Minister of Finance, Hon. Tutoatasi Fakafanua, told Parliament that the main feature of this year’s budget was the beginning of a series of tax-tariff reforms, “the long-term objective is to shift government revenue collection from the import duties and the wharf to broad-based sales tax,” he said.
The reform package of the Minister meant that the House had to make some very important decisions before the end of the 1997-98 financial year. Five of these were:
- To reduce the import duty on all petroleum products by 50 per cent.
- To amend the Sales Tax Act by expanding the Sales Tax base into the service sector and to all imports, both personal items and for resale.
- To pass an Ordinance on the Harmonized Customs Tariff, which came into force in March.
- To pass Tonga’s first Program Budget.
- To pass or reject a petition for government to subsidize the buying of green vanilla beans.
By June 19, eleven days before the end of the 1997-98 financial year, the House had rejected all the revenue earning propositions that were presented by the Minister of Finance. While they rejected the amendment to the Sales Tax Act, rejected the Ordinance on Harmonized Customs Tariff, they did however pass the reducing of import duty on all petroleum products by 50 per cent and the petition for government to subsidize the buying of green vanilla beans. The only item that was left to be dealt with was the Program Budget, which in principal most members had expressed their support for introduction in 1998-99, but there were still some fundamental questions to be cleared up.
Despite the rejection by the House of revenue-earning measures, the Minister of Finance believed that he would still be able to have a balanced budget.
The Minister of Works, Hon. James Cecil Cocker told the House that Program Budgeting had been proven as the way to go. It meant that the allocation for each ministry would go into their own bank account, and they would each be responsible for their own financial affairs. But in Tonga’s case, because the coming year could be the first year of Program Budgeting, the releasing of funds would still be controlled by the Treasury. He supported the move made by the Minister of Finance in introducing Program Budgeting, and told the House that they would be going through a transition period before program budgeting could be fully implemented.
The other former Minister of Finance, the Hon. Mahe ‘Uli‘uli Tupouniua had some reservations about Program Budgeting. He expressed his concern over the adoption of a system which may have worked well in other countries with a different kind of economy, but may not suit Tonga.
The estimated government expenditure for 1998-99 is $129 million compared with $127 million last year, an increase of two million pa‘anga. To finance his budget, the Minister hoped to be able to collect $68.64 million from government services and taxes, $3.05 million from the Tonga Trust Fund, $5.74 million from the Revolving Fund, $0.41 million from local contributions, $13.63 million from from overseas donors, $5.48 million from Asian Development Bank funds, as well as $32.01 million in kind.
The Minister told the House that there would be an overall budget deficit of $0.43 million.