PAUL FLANAGAN | PNG Economics | Edited
CANBERRA - The new Treasurer Charles Abel released his first budget on Tuesday. This was an opportunity to demonstrate the second term of the O'Neill government would help turn the corner on Papua New Guinea’s economic mismanagement. So how did it go?
Overall, there are some wonderful sentiments in this first Abel budget. My sense is that he is very genuine in what he is trying to achieve.
But he seems to be let down by the realities of PNG politics.
Protecting politicians’ electoral funds, finding money for APEC, trying to regain the upper-hand on the rhetoric of protecting health and education - all within the confines of fiscal responsibility - was simply too much.
Something had to give way in this equation of trying to be responsible while dealing with the political spending pressures. It was revenue credibility.
Ultimately, Abel failed in his attempts to explain why we should believe his claim that revenues will suddenly jump by more than 20% in 2018.
This would be an increase of over K2.2 billion and an extraordinary reversal of collapsing revenues in recent years, as the graph reveals.
Usually, such an increase can be justified by a major tax increase (there isn't one), a major new project which produces revenue (there isn't one in 2018) or a rapid expansion in economic growth (2.4% real growth is not rapid).
For me, Abel's Achilles’ heel on his budget's revenue credibility were his deceptions in the budget speech.
The Treasurer is so wedded to the earlier post-election claims of his 100-Day Plan that he hides from numbers that show he is failing.
Specifically, he continues to claim the deficit will not go above 2.5% of GDP. This is the first point in his 100-Day Plan, so it is understandable he is sensitive about it.
Throughout his speech, he used old 2017 revenue numbers when his actual budget documents showed an inconveniently lower number.
PNG's forecast fiscal deficit for 2017 is now 3.1% of GDP. The new Treasurer has failed to meet both elements of the very first point in his 100-Day Plan - deficits are bigger and debt is higher than he promised less than 100 days ago.
The games played by the Treasurer in his speech by hiding the real state of the budget do not inspire confidence.
Later I’ll provide a more detailed analysis of the 2018 budget. A key issue will be that, as revenues are unlikely to be anywhere near their claimed levels in 2018, the rest of the budget begins to unravel.
One cannot spend what one doesn't get.
So there will be real decisions ahead on which pet projects will not be funded. And my fear is that if there is a choice between APEC funding and electoral funds versus health and infrastructure spending, the latter will be the losers in the inevitable 2018 supplementary budget.