Thursday, 15 June 2017

"Resuscitate and grow the economy" is the priority for Social Democratic Party - 2017 National General Elections

(NCD Governor, LLM, MP)

Unless we resuscitate and grow the economy we will not be able to deliver on all the goals and aspirations of our nation and our people. This is our priority as a Party and the terms in which we are going to be part of any Government after the election.

We can blame the Govt and blame world markets for the pressure we face in the economy but unless we come up with solutions we will not over come the challenges we face. It is incumbent on all Parties to formulate and offer solutions and our Party has taken time and effort to formulate and offer solutions.

If other Parties have better prescription and solution we would be glad to consider their solutions too but this a collective responsibility we must address and resolve. Bottomline is if the economy is not growing all our outcomes will not be reached.

We the Social Democratic Party offer our plans and strategies below. We are now working on specific action plans for each of the components of the plan


These policies are devised considering the problems affecting the nation. This plan shows our readiness to be the leader of forming the next Government or align with any parties that have the people’s mandate as our policy platform to provide coalition support.

Our Plan for the nation in terms of bringing Economy back on track

We strongly believe that bringing economy back on track will solve the country’s problem by itself, be it unemployment, debt level, money supply among people, foreign exchange crisis. So our focus will be to resurrect the economy.

Our priorities will be the need to get the economy on track, feed our people, educate our children, attend to their health and raise our people’ standard of living, giving them a better quality of life.

Our policies may not be conventional; but we strongly believe that they will work in PNG.

Economic Policies

1. Accelerate Economic Growth

Bring growth back to 10-12% growth rate that it used to be in 2012, 2013 and 2014. Now it has slipped down to around 2-3%. We have a multi-pronged growth strategy that will delivers results now and sustained over the years:

Get the next LNG Project into construction now.

Have a series of large capital projects properly planned and sequenced so the momentum from one to next is not lost and businesses can invest for growth.

Avoid cyclic nature of growth.

2. Lower personal taxes

The volume of currency is greater when its spent by the earner than the currency that is channelled through tax; for every Kina of tax the Government collects, we deliver less than 40 toea for projects. If we allow people who earned it to spend, they will spend with larger multiplier effect and that grows the economy; alternatively, if they save, then again it leads to capital formation and investment and that also grows the economy. People will either spend or save. They won’t waste like the Government does.

The spending will lead to acceleration in economic growth reducing the need for Government deficit. When people save, it will lead to capital formation and investment- reducing the need for the Government to borrow. Simple Economics! Less taxes, less government, greater economic impact.

Look at Singapore and Hong Kong. 10 to 15% maximum tax rate compared to 42% in PNG! People know better than the government where to spend their money. Money spent by the private sector has larger multiplier effect or the ripple effect.

We will reduce the personal taxes increase the minimum tax thresholds progressively over a period of time.

We will encourage personal savings to lead capital formation by reducing the margin between interest rate on short term deposit (1% now) and loan (9% now).

The loss of revenue out of reduced personal income tax will be offset by the review of tax on profit on non-renewable energy sector.

3. Foreign Exchange

This is largely man-made by a knee-jerk reaction by Regulators in trying to manage the exchange rate by artificial controls. The businesses are strangled and consumers have to pay for it.

For short-term we will set up Friends of PNG where we can either borrow at par and or secure front loaded development aids to stimulus the economy and to increase foreign exchange reserves.

We will also approach International Monetary Fund or World Bank assistance to relieve the short-term crisis and sustain them through economic reforms.

We will get our macro-economic policies right and stop providing tax holidays and exemptions to large companies.

(For instance, if the previous Government had not exempted Exxon Mobil from paying GST on PNG LNG Project, PNG would have received US$1.9 billion (Kina 6 billion) in foreign exchange upfront without worrying about the oil prices. This would have brought foreign exchange and current crisis was never to be. This would have also reduced our debt levels. The next project is not far off and we need to get it right.

We will support the local down-stream processing industries and agriculture to replace the imported goods with local produce. Consider ban of imported goods where they can be made locally, and we will do it in a structural manner. This will remove the pressure on foreign currency.

We will strengthen the enforcement to bring in all foreign currency by exporters within the allowed limits to PNG. There shall be no exemption for whatsoever purposes granted. We will impose heavy taxes on unrealised foreign exchange to PNG through strict audits.

4 Create More Local Jobs

The unemployment rate is very high in PNG due to high number of unskilled workforce. We will create more jobs locally by:

Setting up Down-stream process of PNG resources.

Convert machine dependent activities in to labour based. I tried in NCDC but could not succeed due to “no economies to scale”. It will succeed if we do it nation-wide and if the change is structurally done.

Make more Papua New Guinean employable – Tax incentives for those companies who train and retain Papua New Guinean labour.

Provide Tax incentives to corporates that spends more than 50% of payroll cost on PNG Workers. This will encourage more Papua New Guineans into work force.

Increase the minimum wages rate.

5. Agriculture

We will invest thick in agricultural commodities such as coffee, palm oil, vanilla and sustainable food production.

Contract Farming – Encourage land leasing agreements to allow the transfer of technology to the customary land owners who lacks the capital and know-how.

Set up locally managed businesses by growers who handle the supply and distribution of the produce and share the dividends among themselves. This will empower grower to get organized for fetching competitive price for their produce.

Provide tax exemption to boost agricultural activities – such as zero rate on profit on food corps.

Exempt import duties on raw materials for agricultural industry to enhance profitability of agricultural industries.

Promote and Sustain Tourism Industries

PNG is a beautiful country and has lot of tourism potential. This remain untapped. There is very little to be done to make the PNG destination real paradise for visitors.

We will spend thick on tourism facilities, such as access roads and basic amenities.

We will adequately fund to implement the PNG Tourism Master Plan.

On arrival visa for short term tourists and friendly arrival and departure procedures

Affordable and reliable and consistent domestic flights

Communities to adopt tour groups for the visitors safety (similar to what I trailed for Pacific Games participants in the Port Moresby City.

Programs to change people’s attitudes towards tourist.

6. Foreign Aid

We will not allow any foreign aid to go into the budget support and public service, it will be program driven. No aid money will be allowed under public spending.

The Government will only regulate where the aid programs can be channelled to; we will tie in all Aids or donations to health, education and infrastructures development programs. We will set the priorities.

Build Quality infrastructures/Transport

We will not just build roads but we will create economic corridors. We will have a sustainable plan for its maintenance.

We will make domestic flights affordable by encouraging competition. We will allow foreign direct investments on domestic air services.

We will revamp all the hospitals and our priority will be to renovate hospitals, and supply equipment’s and sustainable supply of medicines.

We will attempt to convert Port Moresby as a Transit hub among the Pacific where infrastructures will be created to invite more flights to transit through Port Moresby.

Solve the Energy dilemma:

Power supply and energy are key to growth. We export LNG but have no power for our own people who need less than 5% of what is exported. As a Government, we will take action. We will get the policies right.

Domestic gas is cheap. We need to enforce domestic market obligation where part of the gas is reserved for domestic use.

This will bring the price of power down and make it affordable.

Decentralisation: empower the provincial governments and LLGs

We will adopt bottom-up approach and not the other way around of top-down. Our people, through LLG and Provincial Government will set the priorities; and Waigani will make the resources available to those priorities.

We can’t govern the entire nation from Waigani.

The provinces and LLG’s need to be given the ownership, need to be strengthened and empowered

The State makes the policies and provides coordinated development but provinces and LLG’s will be the implementers.

Get the Education Right: An educated nation is a progressive nation

The Free Education policy is great, but incomplete. It just delivers the numbers, not educated people. The subsidy will continue, but we also consider important for the Government’s job is to create quality educational institutions and lower the cost of education. We will do that by expanding educational network, collaborating with developing nations who provide quality education at low cost and investing in our teachers’ quality. TEACH THE TEACHERS!

We will bring in technology in schools and universities. Fibre optics, fast and affordable internet for all and distance education for our villages.

Get the oil companies and LNG Companies pay GST

The Government exempted the Kina 60 billion LNG Project from 10% GST that we all pay. It would have been K6 billion or US$ 1.9 billion is GST paid in PNG.

This would have solved many problems: foreign currency, Kina value. No need to borrow or run heavy deficits. Just collect the GST. This would have delivered money to Government in years 2009 to 2013 rather than waiting for corporate tax payment until 2022.

GST is not affected by oil price slow down or by high costs and is payable upfront.

The GST would not have killed the PNG LNG Project. There was no need to provide this K 6 billion worth of subsidy. The project was robust even with GST.

As the future events proved, even with a 20% cost over-run and more than halving of the oil and gas price, the project is viable. We should have kept the GST which would have paid for this downturn and would have helped with the foreign exchange as the LNG Companies would have been required to bring FX to pay GST.

We won’t make this mistake again.

Get the monetary policy right:

1. We will reduce interest rates to 5% and make borrowing easy.

2. The interest rate on bank deposits is 1%. The interest rate on bank loans is 9%. This is 900% margin. Most developing nations have a margin of 2 to 3% between deposit and lending rates.

3. This is the reason financing is unaffordable in PNG. The start-up businesses can’t get going due to high cost of borrowing.

4. The households don’t save because the deposit interest is so low. There is no capital formation. The result is that the Governments needs to borrow or deficit finance. No ability for general public to borrow and invest.

5. Get the fiscal policy right:

6. We will reduce taxes and non-developmental budget

7. As mentioned above, we will keep taxes low and grow the economy

8. We will expand our tax base; we will target income earners or corporates who don’t come under the taxing nets. We will do it by increasing the capacity of IRC and appointing private accounting firms to bring tax evaders to the taxing net.

9. We will introduce a tax on all cash transactions, this is to encourage corporate to record all their business transactions. This will also bring more businesses into taxing net.

10. All corporate bank accounts that do not have links to an active Tax File Numbers will be closed. The sync between IRC and banks will be regular.

11. This will create economic growth; develop other sectors of the economy. The lower tax rate will deliver the same (or more) tax collection as the high rate when we broaden the tax base.

12. We will limit Government spending on activities other than infrastructure, health and education. We will cut down on bureaucracy.

13. We will abolish tax holidays and tax credits

14. Get the development policy right

15. Focus on agriculture, fisheries, tourism and traditional industries

16. Improve infrastructure: power, roads, ports in a co-ordinated manner- so main economic hubs are well connected

17. Import substitution: Get the local produce to the markets- quick

18. Focus on health and education. Bring in low cost partners

19.Make borrowing affordable

20. Bring in ICT revolution- the internet does not have to be this expensive!

21. Let us also cover some equally important economic issues which have generated lot of debate now-a-days. Although we have covered some of them in other aspects, our plan will be:

22.Debt level and its impact: we don’t need to have any level of debts that will put strain on the government budget as well as currency. We will right size the debt level.

23. We will immediately review the commercial borrowings and retire all the borrowings that were used to keep or acquire non-performing assets by selling the assets that such borrowings created.

24. We will ensure that all future borrowings will be for the infrastructure development projects only; i.e. for building infrastructures such as roads, hospitals and schools; and income generating activities where the investment/asset services the debt in full.

Our key theme is economic growth. When the economy is growing, it will have the ability to repay debts by higher tax collection and the income from investment without constraining the budget.

Privatisation: The Government is not in business of doing business. Most commercial enterprises should be privatised. The Government should set the policy and regulatory framework, rather than compete with the private sector. Government sector by definition is not as efficient as the private sector. We will privatise all non-performing assets of the Government.

Unemployment: This is closely linked to our policy on 4 above – creating more jobs for locals. Unemployment will be under control when our Policy start to work:

The Growth Economy in our model will provide immense opportunities for employment growth on a sustainable basis rather than one-offs provided by construction projects.

Our policy on quality education will help reduce unemployment.

Our thirst to create more local jobs as outlined in 4 above such as establishing downstream processing in PNG; tax incentive for paying 50% wages to local work force etc will reduce the unemployment rate.

National Income: National Income is at the core of our Growth Model. The increase economic activity and money supply will lead to increase in GDP i.e national income.

Money Supply and Inflation: Most of the inflation in PNG is not driven by excessive money supply or excessive consumer borrowing. The interest rates are already so high that there is little incentive to borrow for household sector.

Our inflation is not due to excessive demand but it is cost-pushed inflation. The cost of borrowing is high and the cost of inputs is high; cost of doing business is high, and cost of imports due to the currency crisis is high; which pushes the price up for everything.

In our model, we will bring the cost of inputs down rather than constraining money supply which is badly needed for growth.

Foreign Direct Investment (FDI): There will be a while before PNG can boast of solid entrepreneurship and capital formation. Therefore, FDI will continue to be the cornerstone of our policy. However, it needs to be meaningful and income generative and not to take jobs and businesses away from Papua New Guinean.

Reducing dependence on extractive industries: diversify the economy by reinvesting the income from extractive industries into other sectors and keeping the economic momentum- no stop and starts.

Exempt agricultural activities from taxing net. Let farmers produce food to sustain PNG’s need.

Increase tax on Extractive industries; this is extracted for free.

Solve the Structural Issues

We believe that our model above will solve most of the following perennial problems affecting PNG.

We remain the 153rd bottom nation in the league of 175 nations (UN Statistics) in terms of poverty

Education and health care are in bad shape: in numbers and in quality. We are at bottom in Human Development Index.

We remain the 10th lowest in the world in terms of difficulty to do business

We are one of the highest taxing nations in the world: close to 50% tax take similar to our neighbour Australia. PNG Citizens and salary class people are taxed at 42% while foreign oil companies are taxed at 30%!!

We have turned ourselves into a high-cost developing nation- a disease we borrowed from developed economy. Our Kina buys less than what it is valued at (purchase power parity is poor!).

Our nation’s economic strength- agriculture, fisheries, forestry are totally ignored

A flip-flop pattern of economic growth: Big Mines, big oil, big LNG came and gone. A sudden spurt and it dies again. The momentum is lost because we are unable to get the next project going straight after the first one: allows mining and oil and gas companies to drag on (warehousing!). It took 25 years between Kutubu and PNG LNG. The economic momentum of PNG LNG in 2009 to 2013 is lost. We are in 2017 !!!

To give an example: The PNG LNG Project provided necessary momentum to the economy from 2009 to 2013. The reserves for the next LNG Project/train were already there, but we did not get the next project going to date after a lapse of 4 years. The 10 % plus growth has come down to 2%. Businesses which invested large moneys are struggling. It has happened time and again on mining side, LNG side and oil side. There is no long-term planning and the Government does not drive the timing of the projects at all.

The result is that we expanded the budget from K8 billion in 2009 to K18 billion in 2014 and shrunk it back to K12 billion this year. The programs get started and remain half-funded. The momentum is lost- the multiplier effect is not there due to gaps.

We have got the economic policy agenda; we have got detailed plans to back it up, our development policy agenda will fully affordable.

Authorised for Release by:
Hon. Powes Parkop, LLB, MP


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