Politics
And That's Not All. More Bad News For Somare
AusAID tells PNG: Continue with reforms or else...
With just three months in office, the government of Prime Minister Sir Michael Somare appears to have more problems than it anticipated.
The government’s mission to rescue the country from an economic slump, in particular its effort to raise money to fund the country’s 2003 Budget, appears to be not very promising. And several donors seem unimpressed with the government’s handling of issues that matter most to them.
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Australia, Papua New Guinea’s biggest aid donor, giving assistance of some A$350 million a year, insists the government must continue to pursue economic and social reforms introduced by former Prime Minister Sir Mekere Morauta.
Australian Prime Minister John Howard made the call during his visit to Papua New Guinea in August. This was again reiterated by its aid agency, AusAID, in its report to the Australian Parliament two months ago.
AusAID warned Papua New Guinea that continued economic and social reforms were necessary if the country was to arrest its steady slide into chaos.
“We need to be realistic about our aid involvement in PNG,” AusAID said in the report.
Somare, who appeared reserved during his discussions with Howard in August, has yet to publicly comment on the request. Somare is a known nationalist, a stand which Australia is well aware of. But he had earlier indicated that Papua New Guinea would open up to Australia at the appropriate time.
In another misdemeanour, the government attracted the ire of World Bank officials in the country by refusing to attend a workshop organised by the bank on its K160 million Forest Conservation Project.
Forest Minister Patrick Puraitch said forestry department officials did not attend the workshop because of lack of consultation by the bank.
Puraitch said his position regarding the workshop was the government’s position, adding that “the bank will not dictate terms to the country”. He said he had met with Somare and had explained everything to him.Somare has yet to make known the government’s stand on the issue.
However, the World Bank’s country director in Papua New Guinea, Klaus Rohland responded by blasting the government, saying the project was the “heart” of its relationship with Papua New Guinea.
While this was going on, Finance and Treasury Minister Bart Philemon was on his way to Washington DC, United States, to seek the bank’s support for the country’s budget. Among other things, the bank would be asked to help service the K470 million financial gap that currently exists in the 2003 Budget framework.
On the eve of his departure, Philemon said the understanding reached with the International Monetary Fund and the World Bank would provide the basis for further pledges of assistance from Friends of Papua New Guinea such as China which has agreed to provide K4 million cash grant towards the 2003 Budget.
Meanwhile, the government’s effort to save cost under a cost-cutting exercise has received stiff opposition from the largest public sector union, the Public Employees Association (PEA) and its affiliates.
The association had accused the government of not consulting it before the cost-cutting measures were introduced, and threatened industrial action if the government failed to respond appropriately.
In another disturbing development, the government’s public pledge to clamp down on corruption in the country has been ridiculed with the surfacing of news that certain members of government were planning to replace the management of the country’s largest superannuation fund, the Nasfund.
The news came when the fund had just recovered from a near collapse by a similar political interference by the government under former prime minister and now Parliament Speaker, Bill Skate. Nasfund board and the unions are rallying behind the current management team, saying they want the team to remain in office.
And in another dangerous move, the government risks being sued thousands of kina by companies involved in the privatisation process introduced by the Morauta government by putting the process on hold.
It has yet to establish a Commission of Inquiry into the sale of the country’s locally owned bank, the Papua New Guinea Banking Corporation to Bank South Pacific. The decision is believed to have also affected the sale of Telikom. Its managing director has resigned with the unions urging the government to retain his services.
The latest blow to the government came in the form of a Supreme Court decision, declaring one of the government’s main sources of revenue, Value Added Tax (VAT), as illegal.
The National newspaper reported on September 30 that the Supreme Court ruled that VAT, which has so far earned the national and provincial governments a total of K1.2 billion was “unconstitutional” and “invalid”.
Commissioner General of the Internal Revenue Commission (IRC), David Sode, warned that if the national and provincial governments were liable to repay the money, “it would have catastrophic consequences nationally and internationally.”
Current revenue collection amounting to K600 million per year, almost a quarter of the revenue by IRC, could be lost by this decision, Mr Sode said.
That would lead to a further shortfall in revenue in the last three months of 2002 of K150 million. In addition, the government and the provinces would become liable to repay K1,250 million, the net amount collected through VAT after refunds since the start of VAT in 1999.
Because of its catastrophic implications, the national government has sought urgent legal advice at the “most expert level” with a view to introducing a bill in Parliament to pass a validating legislation with retrospective effect and let VAT continue, said Mr Sode.
In the meantime, Sode said all businesses should continue their present tax accounting systems until further notice.
The Supreme Court consisting of Chief Justice Sir Arnold Amet, and Judges Gibbs Salika and Ambeng Kandakasi ruled in favour of an application by Morobe Governor and former acting judge Luther Wenge, who went to court two years ago seeking that VAT be declared unconstitutional.
A jubilant Mr Wenge said: “It is a victory for the people.”
He said the ruling is good news also for the little businessman who has to pay his quota (of VAT), in the midst of hard economic times.
Meanwhile, the President of Papua New Guinea Business Council Mel Togolo said the VAT ruling is a major blow to the country’s capacity to raise revenue efficiently.
Togolo said the ruling also has much wider socio-economic implications.
“However, first and foremost, it should be noted that the decision does not question the value and efficacy of raising revenue through the method of Value Added Tax.
“In other words, it does not say value added tax is bad or evil. The declaration was based solely on questions of the constitution.
“The impact of the decision is very significant. It virtually means that the government will be unable to meet major commitments because any prospects it may have had are now meaningless without VAT.
“The impact will reverberate downstream the development path, already a declining and diminishing route.
“The thought of IRC reimbursing businesses is complex, impractical and fraught with difficulties.
“And in any case, does the national government still have the money it had received in previous years? That also includes provincial governments who had the privilege of receiving VAT from the national government,” Togolo said.
“Unfortunately, once again, the perception of instability has been given the limelight. Given our current economic conditions, we cannot afford any more uncertainties.”
Togolo said: “Under such circumstances, I think it is very important for the government to work very quickly to calm the nerves and prevent the investment climate from deteriorating any further.
“While companies as usual are free to seek private legal and financial advice, I think it would be prudent, in the short term, for businesses to assume that VAT continues to be valid.”
