A PROMINENT economist and expert on Papua New Guinea’s economy, Paul Flanagan (pictured), says the collapse in PNG's revenue is likely to continue in 2017 with an estimated additional shortfall of K1.5 billion, the same as this year, which has been a disaster for the PNG budget.
“This will add to the budget deficit, debt levels and financing pressures,” Mr Flanagan said.
But surprisingly, given the PNG government’s continuing justification of its budget problems, Mr Flanagan said the major cause of the revenue collapse is not a fall in international commodity prices.
“The reason is the fall in domestic tax collections as a result of PNG's domestic recession,” he said. “Better policies are needed to restart growth and additional tax measures should be considered.”
In 2014, it was forecast that 2017 revenue would be K15.2 billion; the estimate now is that it will be K10.5 billion - a drop of 31%.
This is likely to plummet even further to K6.3 billion in 2018.
This crash in revenue has led to expenditure cuts in key sectors of the economy - a 52% cut in infrastructure, 45% in education and 40% in health with large slashes also planned in future years.
IN an apparent attempt to defy gravity, PNG's Treasury has moved to a pattern of significantly over-estimating revenue forecasts which have not been matched by subsequent performance in terms of company and personal tax and GST collections.
“As PNG's growth prospects are still very uncertain, and given the patterns of oversell in recent budgets, this shortfall may also occur again in the 2017 revenue forecasts,” Mr Flanagan said.
“2017 revenues are likely to be some K1,508 million lower than forecast in the 2017 budget.
“Lower domestic revenues in 2016 and 2017 will increase deficits and build up debt levels.
“Given the difficulties of domestic financing, and little scope to do more on the expenditure or revenue sides prior to the mid-2017 election, there is now even greater pressure on getting international financing.”
Mr Flanagan said the first $US200 million tranche of the Credit Suisse loan will assist but adds: “Its costs should be made public, especially before any further tranches are drawn down.
“And the kina should be allowed to move to market levels to ensure the most available kina flow from any $US borrowing.”
Mr Flanagan said PNG's credit rating will remain under significant downward pressure and that the government “needs to move to better pro-growth policies to fix the budget and possibly consider other tax measures to help fill the budget gap, such as a capital gains tax.”
The full article can be found on the PNG Economics website here