It’s done, the budget has been presented and the reaction, thanks largely to the lengthy build up, we discussed previously, is “ok no surprises let’s get on with it”.
In our last column, YB was bold enough to make some predictions most of which were wrong! But the general philosophy was accurate. We are disappointed that Government retained some items on a zero-vat rating but at least they removed the totally unworkable three tier VAT strategy.
Why the objection to multiple rates of VAT ?? For a start the simplest most effective way of managing VAT is with a single VAT rate. That makes it impossible for traders to get up to any skulduggery charging up items at the wrong rate and it makes management for the taxpayer and collector much easier. Our politicians of all sides including the current Minister of Finance have been guilty of promoting this idea that zero rating basic items is an effective way of helping the needy. In fact, the main benefactors of this policy are the wealthy who can afford to pay VAT and inevitably buy the bulk of these zero-rated items. A much more efficient policy would be a single rate with an emphasis on supporting those in need with direct financial assistance including providing better government services like healthcare.
Sadly, we have got hooked on this zero-rating idea but hopefully we are edging closer to removing it altogether.
YB understands that managing a two-tier VAT structure isn’t perfect, but it is possible because most international VAT monitoring software packages are designed to handle up to two levels of VAT but hardly any provision for three. This made managing VAT a nightmare resulting in major inefficiencies and fraud.
Anther political myth that needs to be corrected is that Government can effectively control prices. YB is often amused by the request made to control the price of lamb chops. Truth is the Government has no control over this item and by using the clumsy method of imposing price control it gets in the way of businesses competing to import the best products at the cheapest prices. In the case of “lamb chops” it just means that the Fiji consumer receives the lowest grade of meat possible or in some cases importers refuse to import the item. YB is convinced that our famous Fijian culinary institution “the long loaf” has declined in quality substantially under price control.
To be hones, success in politics is often just good timing. In the new Government’s case this comes in the form of falling import prices driven largely by a major drop in international freight rates. This will help soften the impact of the increase in VAT and generally boost the public mood.
Much of the rest of the budget is plain common sense. A corporate tax of 25% is sensible and reasonable by international standards. Closing off the strange loopholes, some of which will hopefully be investigated, that were created in previous budgets will make life a lot easier for the tax collectors.
One gets the sense that with the budget out of the way, focus will now turn to efficiency of delivery and more specifically cost-efficient delivery. YB was stunned to hear that when one major infrastructure provider that consumes the bulk of our capital tax dollars, was asked to present their plans to the fiscal review committee, they turned up with a single piece of A4 paper torn from an exercise book.
A lot of this comes back to a failure to understand who the customer is and more importantly in the case of Government, that the customer is often also the shareholder i.e., the taxpayer. This comes from a distorted idea that those in positions of power are there “to be served rather than to serve”. Another comment from one of the members of the Fiscal Review Committee was the number of times CEOs of large infrastructure providers referred to the organization they “served” as if they owned the organization.
This budget is a first step and as the Minister of Finance pointed out they have inherited several legacy issues that can’t just be abandoned like the infamous Lautoka swimming pool. Similarly, they have inherited several “sacred cows” i.e., budgetary areas that cannot be touched for political and other reasons. In the absence of real public scrutiny these have blown out adding significantly to our deficit. It is understandable that a new and still fragile government has left these battles for another day. However, that won’t stop YB opening the conversation, as we promise to do in the coming weeks.
PS. Our final comment this week is on the subject of foreign travel. Last week we discussed the success of the new Government’s foreign policy initiatives and we do understand that Fiji must play its role in the world BUT this is a dangerous trap. As a small but influential country we are on everyone’s invitation list to attend meetings and conferences all over the world and for those deprived for so long of these perks the temptation is understandable. This doesn’t only apply to Government but to all forms of public service organisations and we include sporting bodies in this list.
While these trips are usually funded by others the costs add up AND more importantly the distraction builds. To put it bluntly, the more time you spend travelling the world the less work you are doing at home, sorry that is a fact.
A quick review of how many acting Ministers there are at anyone time reveals just how much travel is going on and the new Government needs to get control of this, sticking to foreign visits that are necessary.
Finally, remember in politics, like with most things in life, perception is reality. When one of the first acts of a newly appointed CEO of an ailing sporting institution is to dash off to Europe to “renegotiate” a contract already in place the perception is TERRIBLE. Especially if that same organisation may need to crowd fund to survive!. Who pays for the trip, while important for transparency reasons, is not the issue it just looks SLACK. The same truth can be applied across multiple levels and sectors of the Government and the public sector starting at the very top
