Economist says PNG budget figures deceptive

11:47 am on 3 November 2016

The Papua New Guinea Government's 2017 budget will bring in new taxes and make major cuts in spending including for health.

The Papua New Guinea government has tabled a $US6.6 billion Budget.

The Papua New Guinea government has tabled a $US6.6 billion Budget. Photo: RNZI/Johnny Blades

The 6.6 billion US dollar budget will chop back on capital investment but will continue some of the O'Neill government's flagship policies, such as free education and health services.

Other sectors are hit hard by cuts with government spending down 3.5 percent and revenue forescast to drop by two percent.

The budget deficit is put at $US581 million dollars.

The Treasurer Patrick Pruaitch, announced the budget yesterday, saying there'll be tax increases on tobacco and alcohol, a tax to encourage the processing of logs and the extention of the additional profits tax to the mining and petroleum sector.

Domestic Economic growth is projected to be around 2.8 %, largely driven by argiculture, forestry and fisheries.

However utilities, transport and education sectors as well as Law and Justice have funding decreases.

Health spending takes a substantial drop, confirming declining financial support for operations of rural health services and the critical work that church health workers do in some of PNG's most remote regions.

Mr Pruaitch told parliament the government had structured a very responsible budget.

"I know critics question our ability to manage our own affairs, make our own choices and live with our reality, but this government has placed its faith in its own people to manage this economy," he said.

Papua New Guinea's parliament.

The PNG government has given the parliamentary opposition a week to respond to the 2017 budget. Photo: RNZI / Johnny Blades

$US125 million was earmarked for 2017 National Election; $US79 million has been set aside to pay for the hosting of the 2018 APEC meeting in Port Moresby; Spending on provinces is on the increase too.

Yet the Economist Paul Flanagan said the budget figures were deceptive.

"There was a pattern of errors that was just too convenient for trying to sell the overall story of the Budget, that is one of fiscal consolidation and responsibility," Mr Flanagan claimed.

He said the expenditure cut of 11% in nominal terms struck over 30% in real terms after incorporating inflation, in all sectors other than provinces.

The former PNG Treasury Department employee said the claim that debt servicing interest costs would fall steadily from the current year until 2019 doesn't stack up with growing debt rates.

"Numbers seem to be following patterns that weren't just errors - they were deceptive numbers and overall I think it amounted to a fraudulent Budget."

LNG Project facility, Central Province, Papua New Guinea.

PNG has a burgeoning petrochemical sector, alongside significant Liquefied Natural Gas developments. Photo: RNZI / Johnny Blades

Additionally, Mr Flanagan felt the government had missed another chance to concentrate on developing policies that build confidence and encourage private sector growth.

"The policies they have put in place around SMEs, the plan around rice and agriculture, the plans around land are all policies that the feedback from the private sector is saying that these are anti-growth."

However another economist said despite tightening fiscal pressures on the country, Papua New Guinea's economy is still likely to hold some appeal for investors.

Rohan Fox of the Australia National University, co-ordinator of the University of PNG partnership at the School of Business and Public Policy, suggested that investors still saw significant attraction in PNG's resources.

PNG Today reported him raising concerns about the continuation of the Provincial and District Services Improvement Program Funds at a time when there are substantial cuts in the priority areas of health, education, law and order and transport.

But he said tax increases woul help the government with the Budget deficit.

Mr Fox also said predicted inflation of 7 percent should have an immediate impact on the price of goods and services.