Beefing up the Budget [1]
Friday, August 30, 2002 - 10:00. Updated on Wednesday, February 10, 2016 - 14:42.
From Matangi Tonga Magazine Vol. 17, no. 2, August 2002.
Tens of millions of pa‘anga in government expenditure that used to be disregarded in the annual Budget estimates, have this year been incorporated into the figures—beefing it up to $112 million in operational costs. This is a new approach by a new Finance Minister, Siosiua ‘Utoikamanu, to make government operations more “transparent”.
Transparency, said the Minister, is paramount if there is to be overall reform to boost the economy. This year, for example, he included in the estimate a $10.8 million hurricane relief loan for Vava‘u and the Niuas. The amount is the most significant component of Government’s capital expenditure for the restoration of infrastructure of these outer islands.
Tax collection
Government estimated they would collect revenue and grants worth $103.8 million, which is 15.4 per cent higher than the previous financial year. This is one result of the decision to introduce subsidies to replace tax exemptions to assist public enterprises and the private sector.
The $13.9 million increase in revenue was related to the improved tax compliance of the Revenue Services department.
The Budget transparency also included a record of duty exemption, in the case of restructuring Vava‘u and the Niuas after Tropical Cyclone Waka.
Usually, duty exemption simply lowered Government revenue collection, and because these figures did not find their way into the Budget estimates they acted as an invisible force.
“The whole idea is to include it in the estimates so there will be some discussion of it in Parliament, whether it is the right way of doing it or not,” he explained.
He added, that in the estimate, the total amount of tax and duty exemptions was around $10 million a year.
Borrowing
The Budget Statement also gives high priority to financing the budget deficit from overseas borrowing.
Government had adopted the system of Program Budgeting. “It’s all about accountability, and efficiency,” said the Minister.
In essence, Departments will be controlling their own finances and operations—breaking away from monitoring by the Ministry of Finance of their day-to-day operations.
“The idea being that we then have things like mission statements, performance indicators, performance objectives, and then at the end of the day you can look at the program and say, ‘these are your performance indicators, how well did you do?’ And if you didn’t do well enough then what’s your explanation?”
The attempt of the program budget was to draw focus on what the programs’ produce in relation to the amount of resources allocated to them.
Government was still in a transition stage between the traditional Line Item Budgeting and Program Budgeting, and was moving to improve the Treasury’s methods of preparing Estimates.
“When that happens, then we can move towards program budgeting as it’s normally and conventionally practiced,” he said.
“The estimates have been presented in the form of program budgeting [setting out] government’s policies in what it hopes to achieve; what it sees as the main challenges; what it’s planning to do about it—to give an overview. The estimates give you the specifics.”
Downsizing government
The question of the efficiency of the Tonga Civil Service was not a new one, said the Minister, who was confident that downsizing the Civil Service was inevitable and necessary. Government had made allocations of at least $4 million pa‘anga from the Asian Development Bank loan of $20 million pa‘anga to support individuals who would be affected by the redundancies. They had also approved the abolition of 158 posts and would not fill 425 vacant positions. He said they might need more reductions.
The monies would be used to finance a severance package as well as retraining, and counselling on saving.
“If we’re going to let people go, we must give them skills that they can utilise to find alternative employment,” he explained. “The last thing we want them to do is to spend it all and sit around for the rest of their lives in unemployment.”
He said they did not want to just cut down the size of the civil service by means of percentage. The process needed investigation on a case by case basis, and at this stage it was still unclear how many civil servants would be made redundant. “We have to be selective, we cannot just make a general rule.”
The Tonga government employs over 4,900 people, out of the 29,000 people of employment age (1996 census) in the country, and their wages cost Tonga $50.6 million this year, or nearly half of the budget estimates.
According to the Minister, the size of the civil service must be reduced before taxes could decrease.
Tax arrears
In taxes, Government collected over $65 million in the last financial year, and estimated a collection of almost $73 million in the current, an increase of almost 12 per cent. He saw a need to improve the Revenue Services Department, where tax collection arrears amounted to an estimated $10 million a year. In order to do this, there was a submission to government to create new legislation for Tax Administration, he said.
The second part was Tax Reform, covering the wharf taxes, duty, and income tax. Government was looking into removing Port and Service Tax, which was currently at 30 per cent, and at standardising customs duty. These two sources collected over $46 million in revenue in the last financial year, and are expected to increase by $4 million in the current year.
He explained that when Port and services tax was applied to the import of raw materials and capital equipment, production costs increased and the final “prices of our goods are uncompetitive.”
Asking the Public
Identifying the need for public consultation, government has released a proposal on the reform. “Tax and Duty affects us all, and the public must be consulted before a decision is made,” he said.
One of the more sensitive and controversial reforms to the current taxation system, he said, was income tax—currently a flat 10 per cent. Discussions were under way, but the Minister declined to elaborate, apart from saying that it, “needs to be investigated.”
Government was also considering how to relinquish their business interests. The Minister believed there were too many Boards in government, and it wanted to standardise their positions.
Government currently held eight statutory boards, excluding the boards of state-owned enterprises. The Minister suggested transforming them into companies or a corporate bodies with their own rules and regulations so that they could be accountable and their operations become more transparent.
Government has already sold its majority shares in the Sea Star Fishing Company Limited to a private sector company, Maui Pacific Fisheries Limited. Government’s 42 per cent shares were sold at $50 a share—a total package of $2.1 million.
They were also looking at corporatising the Talamahu Market, which currently operated under the Ministry of Agriculture vote. “What we are trying to gain is efficiency through Corporatisation.… There are entities like this that we are looking at to be formally corporatised to see which ones are capable of running themselves, and which ones need money.
“When it gets to the stage where the corporate body is asking for too much money, then government considers whether or not they deserve to be supported or not,” he said.
They would also monitor the services provided by the corporate bodies like the Post Office, and the Government Machinery Pool, and would look into, “what service they provide, are they competing with the private sector bodies. If they are competing with private sector bodies, maybe we shouldn’t have these corporate bodies anymore—maybe we should sell it, or close it, or merge it back into the department.”
Youth unemployment
Strengthening the private sector in a case of right-sizing government and corporatisation were the key elements in combating youth unemployment, according to the Minister, a “number one priority”.
Tonga’s unemployment rate, in the last census, was 13.3 per cent of the economically active working age group, between 15-64 years. Of the unemployed, 42 per cent were youth between the ages of 15 and 19 years.
The Minister reported that three out of four, of the 2,000 school-leavers every year, were unable to get jobs. “That is why we’re trying very hard to enable the private sector to expand.”
He explained that if the private sector did not expand they were never going to be able to absorb the children leaving school, as well as facilitate job opportunities for the civil servants that government would release. “So that is why the private sector plays a crucial role in all of this. And that’s why were hoping that we can work together with the private sector,” he said.