The Opposition Leaders Response to the Most Pretentious and Dangerous Budget in PNG’s History.

“The Oneil Government has killed nation’s prospects for steady and sustainable growth for many years to come.” Fake Budget, Fake Revenue and worse, FAKE LOANS.

Mr Speaker, Members of this Honourable House, we just heard from the Shadow Treasurer, Hon. Ian Ling-Stuckey, a detailed Opposition response to the 2018 National Budget.

This budget is like a runaway train accelerating towards an untimely disaster. Fuelled by huge budget deficits and soaring public debt, the O’Neill Government refuses to put on any safeguards or breaks to lessen the coming shocks.

Mr Speaker, this budget is the most fiscally irresponsible budget presented in this House in all my years in Parliament. The fake revenue numbers referred by the Hon. Ling-Stuckey allow the O’Neill Government to lift expenditure beyond prudent fiscal levels. This is a total disregard for fiscal discipline.

Twice in this nation’s history, Governments have created similar train wrecks to the detriment of the living standards of most Papua New Guineans.

The O’Neill Government is repeating the journeys that led to the ‘lost decade’ in the 1990s and the political and economic recession that ended in late 2002.

There is one significant difference.

More than ever before, the O’Neill Government has capitalised on economic gains from the nation’s most successful decade, from 2002 to 2011, to implement budget deficits on a scale that could not have been contemplated in the past.

It is clear within the Opposition that the O’Neill Government has derailed the nation’s prospects for steady and sustainable growth for many years to come.

Although National Government debt has skyrocketed out of control, and will consume the largest increase in expenditure in 2018, the budget presented last week by the Treasurer, Hon. Charles Abel, is not heeding the danger signals.

This is the strategy of the PNC leadership. In my former role as PNG Treasurer, I was confronted by demands for several billion Kina in additional expenditure a few days before the handing down of the budget. It did not matter to the PNC leadership that Government spending was unsustainable.

The PNC philosophy was to spend all the revenue available and to borrow as much as possible to expand the expenditure envelope. This may be reasonable in a recession, when Government spending can boost economic performance. However, when done year in and year out, as has been the case for the past five years, living beyond one’s means becomes an intoxicating brew.

In the past five years the O’Neill Government managed to spend K27 billion more than the previous NA-led Government, with K12 billion flowing from increased revenue and public debt making up the remaining K15 billion.

Please see this for what it is: A Government spending way beyond the nation’s means and recognise that the 2018 National Budget is offering the same troubling formula of near record expenditures based on rising debt. There is no change in strategy.

O’Neill Government paints a misleading picture of the economy

In the 2018 budget the Treasurer, Hon. Charles Abel, paints a gloomy picture of the PNG economy by focussing on the fall in revenue as a proportion of Gross Domestic Product over the past decade.
The ratio of revenue to GDP may be great in analysing long-term trends, but is less relevant for year to year changes in fiscal regimes. I assure you no Treasurer in the past has prefaced their Budget comments in this manner.

This comparison is misleading because the PNG LNG Project has contributed to a doubling of Gross Domestic Product, or the size of the overall PNG economy. However, highly capital-intensive projects like this take considerable years before they become significant contributors to Government revenue, more so as this project was 70% debt financed.
Leaving aside Government attempts at creative accounting and generation of “fake revenues”, a close look at the 2018 National Budget would lead an objective observer to anticipate a reasonably healthy fiscal situation.

2018 Government revenue highest on record as debt servicing costs soar

As the Treasurer noted, Government revenue and grants in 2018 at K12.73 billion is projected to be K1.75 billion higher than in 2017.
Just reflect on that: Next year’s Government revenue is forecast to increase by 16% compared with 2017. It will stand out as the greatest annual revenue ever received by any Government in PNG’s history.

This Government has got so used to living beyond its means, the Treasurer is attempting to convince the nation that revenues are abysmally low, which is contrary to the actual data in the 2018 budget. The O’Neill Government plans to borrow an additional K1.99 billion to take overall expenditure to K14.72 billion. This is only K736 million less than the record spending in 2015.

The cost of debt servicing will skyrocket from K1.53 billion to K1.86 billion in 2018. The biggest increase in 2018 budget expenditure is for debt servicing; the second largest increase of K310 million goes to the non-productive administrative sector.

Accelerating debt service obligations is very much part of PNC’s runaway disaster train. Prior to 2013 government spending on debt service was less than K500 million. Two years later it surpassed the billion-kina mark and by 2019 it would have doubled again to surpass K2 billion.

In 2016 the cost of servicing the soaring level of public debt had already overtaken Government spending on education or health. Spending on the core education and health priority areas have declined sharply since then.
Continuation of the failed O’Neill strategy will perpetuate problems that has resulted in this Government being unable to make timely payments for tuition fee free education, for medicines and drugs, in keeping up with rental payments for government premises as well as the upkeep of PNG embassies.

This situation is occurring even though the O’Neill Government next year will receive K5.4 billion more than the NA-led Government in 2011, its final year in office. In effect, revenue received by the O’Neill Government since 2012 has been greater than the total annual revenue of any government in the past.

Economic mismanagement is hallmark of O’Neill era

In his recent Supplementary Budget, Treasurer Abel promised to cut expenditure, particularly Service Improvement Programs, which take the largest slice of the budget. Clearly, this has been vetoed by Prime Minister O’Neill so that reckless expenditure programs can go on, as before.

Friends and colleagues let me repeat for you the good news that Treasurer Abel failed to deliver: The revenue in the 2018 National Budget will be at an all-time high of K12.7 billion. This Government has several billion more kina flowing into Waigani each year, but more than any government since 2002, it struggles to keep up with contractual payment obligations.

Sharp contrasts between NA-led and PNC Government

What a sharp study in contrasts between the NA-led Somare Government and the PNC-led O’Neill Government.

The Prime Minister likes to repeat that he has had to deal with a mess inherited from the Somare Government, although the reality is that he inherited an economy that was firing on all cylinders, as shown in official statistics.

The NA-led Government reduced the nation’s overall debt but nevertheless saw formal sector employment rise by over 40% during the five years from 2007 to 2011. Under O’Neill’s government, employment has slumped by 10%. For the past three years employment has fallen, especially in non-resource sectors; per capita incomes are also falling.

Tens of thousands of Papua New Guineans are worse off today than they were in 2011 and the 300% increase in public debt in the past five years will leave an additional burden for our children and grandchildren. Foreign Direct Investment, which helped fuel GDP growth in the earlier period, has shunned PNG under O’Neill.

This Government has been desperately trying to drive this economy by enormous borrowing while failing to make an impression on economic growth or employment.

The O’Neill Government’s K15 billion in additional borrowing the past five years is twice as much as the total public debt amassed by all PNG Governments in the 37 years between 1975 and 2012. The planned borrowing of K1.99 billion next year, together with record revenues, is what will underpin forecast expenditure of K14.7 billion.

Government living beyond its means is O’Neill Government hallmark

Since 2012 the O’Neill Government has received more revenue than the annual revenue and/or expenditure of any PNG Government in the past.
Mr Speaker, Honourable Members, the Treasurer has treated these record revenue and expenditure figures, as though they are a reason for gloom.

The reality is that even though Government revenue from the Resources Sector has fallen sharply, total Revenue and Grants received by the O’Neill Government since 2012 has been higher than the K9.30 billion received by the NA-led Government in its final year in office in 2011. Annual revenue for this Government has ranged between a low of K9.4 billion and K9.8 billion in 2012 and 2013 to a high of K11.87 billion and K11 billion in 2014 and 2015.

Since 2014 LNG exports have overtaken gold as PNG’s top export earner, adding to the nation’s economic diversity. Although gold prices are well down from their peaks prior to 2012, PNG gold exports last year were worth a record K6.6 billion. The 2018 budget forecasts it will hit a new record of K7.3 billion this year.

Last year the nation’s Current Account surplus, which takes account of the nation’s entire trade in goods and services, stood at an all-time high of K25.1 billion with K20.2 billion contributed by petroleum and mineral exports. It was the economic diversity generated during the Somare NA-led years that greatly broadened the revenue base, as demonstrated by growing export revenues, rising employment and government revenues.
Harmful O’Neill Government policies that have left government struggling to maintain satisfactory cash flows has also resulted in imports collapsing from a peak of K12.14 billion in 2013 to a mere K6.5 billion last year.
Once again let me reiterate; the economy is in a mess because the O’Neill Government has thrown fiscal responsibility out the window, and continues to do so. People at the grassroots level will suffer while a few among the elite will prosper.

Policy making on the run based on misinformation

To justify ill-conceived policies, senior Cabinet Ministers have been making false claims about PNG’s export performance and imports. One has been attributing the lack of foreign currency to a mediocre performance for PNG exports and an inability to fully pay for imports. The reality is that PNG gold export revenue alone last year topped the entire PNG import bill by K400 million.

Last year’s Current Account surplus, which takes account of the nation’s entire trade in goods and services, stood at an all-time high of K25.1 billion with K20.2 billion contributed by petroleum and mineral exports.

Are the Ministerial comments a case of ignorance or deceitful behaviour?
Totally false statements have also been made about the importance of import substitution for agriculture with the ridiculous claim, as broadcast by virtually all our media, that PNG’s annual food import bill was costing K4 billion.

In fact, government statistics show that all PNG food import costs in the four years to 2016 does not add up to K4 billion. The value of food imports plunged from K1.15 billion in 2013 to a mere K681 million last year.
This is how the O’Neill Government makes false propaganda and designs its economic policies!

Free education and free public health ‘grossly underfunded’

The O’Neill Government’s greatest claim to a dramatic policy shift has been the commencement in 2012 of free education, based on government allocations for a tuition fee free education. In the past five years, the public has become aware of a big fall in educational standards. One reason has been the doubling or tripling of class sizes to cater for a sudden influx of new students.
Just imaging this Mr Speaker, Honourable Colleagues, since 2012 there has been a doubling in the number of students enrolled in primary, secondary and high schools around the country. The numbers have gone from one million to over two million.

And yet, the O’Neill Government’s Education Budget for 2017 of K1.16 billion is K500 million less than its 2012 allocation and K900 million less than the record 2015 allocation. Government spending for an average student has more than halved since 2012. This is what the O’Neill Government considers its proud legacy.

The O’Neill Government claims to have also made a significant difference because of its Free Primary Health Care policy. But the ‘free public health’ budget allocation remains unchanged at K20 million since 2012, a farcical amount that contributes to a multitude of problems at hospitals around the country.

2018 Budget hurts ordinary people and locks in worsening fiscal crisis

Mr Speaker, let me conclude by pointing out that many Papua New Guineans, who struggle to survive on low incomes, will be badly hit by the 2018 Budget. Mismanagement of the economy, as we have argued, has resulted in the loss of thousands of jobs involving single income families.
The plight of these people will be worsened by a Government decision to impose an additional import tariff of 10 toea per litre for imported diesel and petrol because importers are seen to be making “super profits”. The cost of diesel in 2018 will rise by 23 toea per litre because the government has also decided to align diesel and petrol prices. Starting next year, the excise on diesel will increase by 13 toea every two years until the diesel excise reaches 61 toea per litre to bring it on par with petrol.

The price of everyday goods has already increased because of unavailability of foreign exchange and a weaker kina. They will go up even more next year because of newly increased import duties on 280 categories of imported goods.

Honourable Speaker, the 2018 budget will result in the least well-off in our society facing additional burdens because of falling employment prospects and wide-ranging cost increases.

The callous disregard these past five years for LNG landowner identification has also created a law and order timebomb that this Government continues to pretend does not exist.
The O’Neill Government has failed to commence LNG royalty payments to some 60,000 landowners, for many of whom a life of poverty remains a daily challenge.

The Police Commissioner, Mr Gary Baki, recently publicly appealed to national politicians, including the Prime Minister, to travel to Hela Province and Southern Highlands to resolve a growing law and order crisis and ongoing landowner threats to shut down gas supplies to the LNG project. Even the Police Commissioner’s call has gone unheeded.

Conclusion

The O’Neill Government is leading this nation down the crisis path taken during the first resources boom in the 1990s and the eventual political and economic crisis prior to 2002.

One of the hallmarks of both periods was a breakdown in law and order and the emergency of sorcery-related killings, fears that once again have begun to haunt PNG and create a bad international image that undermine prospects for sustained economic growth.

Mr Speaker, I rest my case that the 2018 National Budget is fiscally irresponsible because of continued over-dependence on an enormous, and still growing, public debt that is dragging down the nation’s economic potential and become a burden to this and future generations.

As the Shadow Treasurer has pointed out, the Treasurer, Hon. Charles Abel, has deliberately misled this House with his claim that the 2017 budget deficit is 2.5% of GDP in line with his Supplementary Budget and 100 Day Plan. In fact, 2018 budget papers the Treasurer presented to this House show that the 2017 deficit has blown out to an unsustainable 3.1%.

In most other jurisdictions such a serious error would have led to calls for his resignation from the position of PNG Treasurer on this score alone, leaving aside the additional issues of FAKE revenues, FAKE loans and FAKE budget.

Mr Speaker, Honourable Members please take these facts away with you as we break for the Christmas holidays. The Government has been covering up its ineptitude and mismanagement by hiding the truth that I have exposed today for the benefit of the people of PNG.

By OPPOSITION LEADER,
HON. PATRICK PRUAITCH, CMG. MP