Chaudhry asks why PAYE, VAT and fiscal duty is significantly overstated in the next budget

Fiji Labour Party Leader Mahendra Chaudhry says he is afraid the people of Fiji are in for some tough times in the post-election era should the FijiFirst get back into power.

Chaudhry says it is notable that the PAYE tax revenue has been overstated in the 2022/2023 National Budget by about $25 million.

He says the PAYE tax estimate is 22 percent higher than the previous budget and 12 percent higher than the pre-COVID 2018/2019 Budget.

Chaudhry says this is questionable at a time when the economy contracted so severely and unemployment increased.

The FLP Leader asks how come PAYE increased at a time when unemployment is high, and it seems to point to a reduction in the personal income tax threshold post elections, in line with the recommendations of the IMF.

He says VAT estimates increased 32 percent from the previous budget and is at the same level as the pre-COVID Budget.

Chaudhry says since the economy is not expected to return to pre-COVID levels until mid-2023 at least, the VAT estimate appears to be overstated by some $50 million. He says again, it foreshadows IMF Article 4 recommendations and is alluded to in the budget supplement section 4.5.

The former Prime Minister says revenue from fiscal duty jumped 41 percent from the previous budget and went up 6 percent on pre-COVID budget. He asks how can this be when duty was reduced dramatically in 2020.

Chaudhry says imports stood at $5.2 billion in 2018/2019 and is barely expected to go up in 2022/2023 to $5.5 billion to $5.7 billion.

He says this revenue appears to have been overestimated by some $50 million and asks whether it indicates a post-election increase in fiscal duty as government strives to carry out fiscal consolidation as required by IMF.

Chaudhry says the IMF Executive Board of Directors issued a statement in December 2021, recommending a road map to guide the implementation of phased revenue reforms and expenditure rationalization, in line with economic recovery.

He says the IMF Directors emphasised the need to address the increase in contingent liabilities related to state-owned enterprises, develop contingency plans, and strengthen governance and transparency.

Chaudhry says this explains the recent shocking purchase of 30% shares in Fiji Airways by the Fiji National Provident Fund, in a bid to prevent a call out on government guarantees by the airline’s debtors.

He says the Article 4 consultations concluded in October last year is highly critical of Fiji’s continued vulnerability to external shocks and its escalating public sector debt projected at 90% of the GDP by the end of the 2021/2022 fiscal year.

The former Prime Minister says it is also noteworthy that the IMF forecasts a gradual recovery in 2022 with real GDP expected to rise to 6.2% which is half of what the Economy Ministry is enthusiastically projecting at 12.4 percent.

He says the IMF has emphasized the need for addressing both macro imbalances through macro-structural reforms and for fiscal consolidation.

Chaudhry adds a phased fiscal consolidation will be critical to put public finances on a more sustainable footing and place public debt on a downward trajectory.

He says critical in this regard will be efforts to bolster public revenue in a growth-friendly manner, together with expenditure restraint and continued sound public debt management.

The FLP Leader goes on to say there is a high probability of VAT being increased across the board post elections, the tax threshold lowered and import duties increased should the FijiFirst be re-elected.

We have sent questions to the Minister for Economy, Aiyaz Sayed-Khaiyum and are expecting a response.

However, in his 2022/2023 National Budget address, Sayed-Khaiyum said the economy is conservatively projected to grow by 12.4 percent this year, its highest rate of growth ever.

Sayed-Khaiyum also said that an economist from ANZ had predicted a 23.2 percent growth this year, and Westpac projected 12.9 percent, both higher than our relatively conservative estimate which is about 12.4 percent.

He had also said that they had largely kept the tax and duty rates unchanged.