Tonga's future prosperity depends on private sector lead economic growth, and business cannot grow in government's shadow, said Tonga's Minister of Finance, Hon. Afu'alo Matoto in launching his first budget to the community.

Encouraging the local business community and welcoming foreign investments he highlighted some major pro-business initiatives, and told the Tonga Chamber of Commerce and Industries Inc. on the evening of June 25 that this year's national budget "works towards creating an environment conducive to a healthy and competitive, private sector."

He said that the private sector would be invited to tender for formerly government provided services where possible, beginning with contracting out road construction and maintenance.

"Private sector development is also being encouraged through a reduction in the government's role in the economy.

"I can confirm that this Budget has been explicitly cast as part of a strategy that recognises the key role that you and your businesses play in improving Tongans' standards of living," he told Chamber members.

There is a lot for businesses in this year's budget: "provided that they are willing to work for it," said the Minister who listed the five key pro-business features of his 2008-09 Budget as:
 

• The continuation of the Government's economic reform agenda;
• The maintenance of political and fiscal stability;
• Active encouragement of private sector activities;
• Working in partnership with industries to provide essential infrastructure;
• the demise of the handout culture

Afu'alo said the budget strategy also recognised "that heavy government involvement in the market through regulation and state ownership are the natural enemies of private sector growth."

"Put simply, we know businesses can not grow in the government's shadow."

Growth forecast

Afu'alo reported Tonga's highest growth forecast in five years with Ministry of Finance economists predicting a 3% growth rate for 2008-09. "This is forecast to be followed by a steady 2% average growth in outyears.

However he said that while 3% growth forecast is pleasing it was not enough. "For too long Tonga has been muddling along at average growth rates of 2% or less. This may look fine when we compare ourselves around the Pacific, however, as the rest of the developing world is growing at about 4% per annum one conclusion is inevitable. Without drastic action we will continue to suffer a relative decline in our living standards.

He said government is continuing its economic and public sector reforms.

"As part of tax reform, duties on imported goods have also been slashed. This includes the removal of duty on fuel for commercial domestic boats and aircraft. Duties have also been removed from capital items and the IDI Act repealed. This will help your businesses afford the equipment and supplies needed to grow."

He commented that, "Government will have to go through training to change their mind set and attitude and that's the only way they will be able to understand the level and quality of service required by the private sector."

Law and order

'Afu'alu said that political stability was essential to sound economic growth.

"To ensure democracy is successfully introduced, the Government is investing heavily this year in law and order. This includes the creation of institutions to oversee the necessary constitutional and legal changes to make democracy possible. The government is also investing in an anti-corruption Commissioner to make democracy work in practice.

Largest budget ever

This year's Budget is the largest Tongan Government budget ever. Net expenditure increases from $152 million Pa'anga to $186 million Pa'anga. but it excluded the purchase of the electricity facility from Shoreline.

Government will increase its investment in infrastructure to provide sector specific infrastructure, he said.

"One example is improving agriculture through the development of a cool store and snap freezing facility. This facility will allow the export of greater amounts of produce in suitable condition for overseas markets.

"To further boost agricultural returns the government is trialling a dedicated Tongan produce outlet in Auckland. If this trial is successful then outlets will be expanded to other markets.

Tourism

Tourism promotion is being boosted. "Additional funding for upgrades to tourist infrastructure as well as increased funding for upgrading historic and natural sites will assist Tonga to attract more visitors.

Additional funding will support the guest labour program in New Zealand.

Rebuilding

This Budget does not contain any initiatives for the rebuilding of Nuku'alofa. AusAID and NZAID funding has been used to establish a Private Sector Reconstruction Fund.

However, he said that negotiations over the China loan for rebuilding are proceeding slowly. "Given the size of the loan and the influence it will have for a generation it is important that this be done correctly rather than quickly. While I cannot provide any information at this time I undertake to keep the public informed of progress on the rebuilding over the coming year.

"Finally the government is clarifying its role and removing itself from the role of lender of last resort. Failing businesses will no longer milk the public purse.

"The are challenges and risks that Tonga has to navigate through include rising fuel prices; an increasing cost of living and rising food prices; a depreciating pa'anga; social and health issues; and pressures for wage and salary adjustments."

The Minister said foreign investment is welcomed in Tonga and "we will do our utmost to ensure the playing field is level."