K500 million for 2010 expenditure budget

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By Terence Kens

The National Government plans to allocate approximately half a billion kina as part of its new expenditure commitments in the 2010 development budget as deliberations to frame next year’s budget get underway.

The new expenditure commitments of K500 million will be sourced from the K3.7 billion that’s currently been parked in trust accounts to boost priority areas such as health, education, law and justice, transport and in promotion of income earning opportunities especially in rural areas.

Addressing the recent Australian Think Tank, the Lowy Institute for International Policy conference in Brisbane, Australia, Minister for National Planning and District Development Paul Tiensten said the aim is to increase the country’s GDP to 4 percent by next year.

“During recent deliberations on the 2010 budget it was estimated that releases from these trust funds will account for up to 4 percent of GDP,  greatly buttressing our growth prospects in these difficult times.

“New expenditure commitments of around K500 million need to be accounted for this year. The government is confident some adjustments in government spending and a small reduction in the development budget will allow for savings of this order.” Minister Tiensten told the conference that while the other countries including Australia and new Zealand are feeling the impact of the global economic crisis “PNG has been relatively insulated from the global economic crisis. The lack of liquidity seen in other countries has not been a problem in PNG, where interest rates have been raised to dampen inflation.

However, current trends have shown that global economic crises did have an impact on the 2009 budget with plunge in commodity prices such as copper and oil dropping by more that 25% to just over K10 billion, the lowest level since commodity prices escalated in 2005. The Treasury Department anticipates a further fall in export revenues to K9.2 billion in 2010.

The government revenue is also expected to drop by K700m next year which Mr. Tiensten noted would be a four year low. As a result government expenditure, including grants, has been slashed from K7.79 billion in 2008 to a projected K6.68 billion this year.

“We are now framing the 2010 budget. Factors being taken into consideration includes – price volatility for key exports; declining levels of copper and oil production and the need to target for a balanced budget in line with the Fiscal Responsibility Act 2006.”

Current expectations according to the Planning Minster are that non-mineral taxation will remain failry robust abnd more than offset the decline in mineral revenue. “the need for ongoing expenditure cuts within a prudent fiscal management scenario is indeed a tough prospect in our current state of development. Vast sums continue to be needed to upgrade most public infratsructure especially after the woeful level of expenditure on infrstsructure maintenance in the past.”

Minsiter Tiensten also stated that the governments current public sector debt has been reduced from 72% GDP to around 30% GDP in the last 5 years after attributing it to the successful passing of the Fiscal responsibility Act. “A further reform we have adopted will revitalize our system of decentralization through improved service delivery throughout the nation. Following adoption of proposals from the National Economic and Fiscal Commission (NEFC), a fixed proportion of government income will go to the 19 Provincial Governments.”

However, former treasurer and deputy opposition leader Bart Philemon said though this year’s budget was development orientated (53% of the total development budget of K1.6 billion) there;s no show for it in tersms of real value. “There is no way planning can tell us we spent money for the development because nearly most of the government expenditure has been consumed in salaries and wages rather than goods and services.” Mr. Philemon instead said a total of k1.6 billion out of the K5 billion has been diverted to Salaries and Wages.

He further noted that the total annual budget of K47 billion from the period 2003 to the end of 2009 did not translate tangible outcomes. “Most of these funds are going into unproductive programs because there is a lack of proper planning.”

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