Transcript
PAUL FLANNAGAN: Well looking at the numbers and in previous analysis of PNG budgets I have been quite conscious of some serious errors that have been made in areas such as GDP and LNG projections on that. But I have also had a look through the numbers on both the revenue and the expenditure sides. There was a pattern of errors that was just too convenient for trying to sell the overall story of the budget. That is of one of fiscal consolidation and responsibility. Numbers seemed to be following patterns that weren't just errors; they were deceptive numbers and overall I think it amounted to a fraudulent budget.
DON WISEMAN: So they have drawn up this budget and they have faked the figures.
PF: Not all of them. There are obviously a lot of assumptions that come through and a lot of economic assumptions that go into the budget are robust and realistic. But if you talk about trying to list revenues there are some good revenue measures there, but if you assume that if you just give one extra kina to the Internal Revenue Commission that you will get 25 kina back that is a number that generally no tax authority would generally use in the world. When you look at interest costs and you tell a story as to how you are going to find $US265 million dollar of savings and interest costs relative to the numbers that were put in last year, although your level of debt is actually increasing. These stories just aren't credible. So it is that sort of issue that leads to the real concerns that international investors and people who are looking at PNG and are deciding to invest, will look through these numbers and will be very worried as to whether they can trust the numbers to make an investment in PNG.
DW: And that information will be apparent to people who look from the outside?
PF: Ah yes the credit ratings agencies and things like that have very smart people with very smart models. And they will go through and they will do the comparisons of these sorts of budgets and things will jump out. So to assume that you will have ongoing cuts, identical cuts across all sectors apart from the provinces, of over 35 percent in real terms over the next four years. And you are making that assumption to actually drive down expenditure, to actually drive down your deficit, they will look straight through those sort of numbers. They are not realistic assumptions.
DW: Well the country has been in a financial mire now for, I guess, two years and you are one of the people who has kept a critical watch on that. It is going to get worse then?
PF: In terms of the actual recession I think there is some positive news that is coming through and some employment numbers, that maybe they have hit the bottom. So there has been a significant increase in the economy, the non-resource part of the economy, during the investment stage of the PNG LNG project. It looks as if that has all disappeared; they didn't lock in those gains through the right policies. Looking forward, that impacts on the sort of revenues, growth numbers that feed directly into revenue numbers. So the growth projections are very, very flat. And that means revenue is very, very flat, indeed, falling in real terms. And that drives the expenditure and foreshadows these continuing massive cuts in areas such as health and education and infrastructure.
DW: The government has presented it as a budget that doesn't cut education and health but you see quite significant cuts to those areas further down the line.
PF: Well not just even further down the line. Lets take one. They talk about such as the free health policy and frankly, if I am to use the word fraudulent I think I would focus on that one as an example. So they talk about free health that is valued at $K20 million. There is a line the budget that says $K20 million. But the health budget was cut by $K315 million from the actual 2016 budget to the 2017 budget. If you look at the projections through from 2015 through to 2021. Put that in real terms. The cut in the budget is of over 60 percent. Nearly a $K1 billion, so they are talking about protecting two percent of the budget and saying that demonstrates their health credentials. You need to look at where the cuts are occurring across the board and that just doesn't seem to line up with what they say are their policy priorities.
DW: In terms of education now this government heralded this free education pretty much across the board. But there has been continuous complaints about the money not coming through. We can expect that to continue I guess?
KH: Yes that is an area that they have once again, that is a much larger policy it is a bit over, I think $K 602 million is the figure on that, so that is a much more significant policy intiative they are protecting that. But they once again, on the rest of the education sector, we are seeing very, very major cut backs once again. It is sort of in the order of 50 percent in real terms for throughout the medium, longer terms. So it is an area that was there and is identified as a key part of education, but of course what that was primarily, was just replacing money that was coming from parents into the school system and simply replacing that with government money. So there is no actual net increase, for schools or for teachers so that has been having to be done through other mechanisms. But that funding is also being cut. We are not seeing in this budget significant funds available to actually provide the schools and the teachers that are required to improve literacy and other standards in Papua New Guinea.
DW: You assessment of this budget is very scathing. What should they have done instead?
KH: The key thing to try and deal with budget repair in the circumstances such as PNG is facing is lifting underlying growth rates. You need to install policies that will build up confidence and try and encourage the private sector to grow. 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. So there are things the government can do, they need to drop some of these electorally popular types of policies and actually look at activities that would lift the underlying growth of the PNG economy. That is what is critical for the PNG economy. That is what is critical for budget repair.
