Looming elections usually see incumbent governments loosen constraints in an attempt to accelerate spending on previous and new promises however Fiji’s 2022-2023 National Budget shows restraint in public sector spending, even though an election is due to be called within the next six months.
According to the latest ANZ Pacific Insight authored by International Economist, Kishti Sen and Senior International Economist Tom Kenny, a smaller deficit is unlikely to significantly change the course of Fiji’s economy.
Their view is that the economy will absorb the shock of lost international tourism output through 2020 and 2021 in the near term, putting Fiji on a path to a historic economic revival.
The economists say the budget is also less aggressive on new revenue initiatives with modest changes to government subsidies, tax concessions, tax rates and superannuation settings.
Sen and Kenny say after maintaining government spending through the worst of the pandemic, even though revenue collapsed by nearly 50 percent, the formation of next year’s budget appears to be driven largely by the principle of budget repair.
They say total expenditure will rise by only 7.4 percent in 2022-2023 (compared with 11.3 percent in 2021-2022) to $3.812 billion before falling by 0.3 percent in 2023-2024 and flatlining for the next six years.
They say revenue is expected to rise as demand escalates.
Taken together, official estimates see the net deficit improving to -7.4 percent of GDP in 2022-2023 from -13.8 percent last fiscal year and being on a downward path to -0.5 percent of GDP by 2029-2030. This will bring the debt-to-GDP ratio to 67.8 percent by the end of decade from the current 89.4 percent.
The ANZ report says Fiji’s approach to fiscal policy over the last two years was to maintain expenditure despite a collapse in revenue and undertake new spending on unemployment and social security payments – a significant easing in fiscal policy.
They say this was the right approach because a sharp cut to spending at the height of the pandemic would have added to the severity of the downturn.
The ANZ report says going forward, the fiscal position will switch to consolidation, as an upswing in economic activity boosts taxation revenue and government spending shrinks as the economy requires less support.
Sen and Kenny say the Budget highlights that some discretionary measures may add to that fiscal tightening as the government seeks to limit the public sector wage bill by containing wages and public sector employment.
They say this will be countered somewhat by an ‘inflation mitigation’ household assistance package.
To soften the blow from higher consumer price inflation, they say the Budget provides a $60 million household compensation package.
In addition, the tax cuts announced in the revised 2021-2022 budget and due to expire on 31st July 2022 will be kept through to the end of the calendar year 2022 at least.
The report says the consumers will be spared from VAT on several everyday items and the 20c fuel tax for the rest of this year and possibly beyond. However, they say given that changes in the cost of living for households are likely to accelerate, the Budget may have considered some expenditure savings to offset more of the future inflationary pressures, particularly for the most vulnerable households.
Low-income groups spend more of their income on essential items such as food and petrol, and the prices for these goods have increased at a much faster rate than the weighted average Consumer Price Index.
They say a larger assistance package would support consumer demand and reduce the need for job cuts in industries that could be facing less demand.
The ANZ report also says that tourism recovery has taken root and will build momentum into a strong upswing from here.
Stay tuned for the latest news on our radio stations
