LOSS OF LEVIES BRINGS FINANCIAL UNCERTAINTY IN COOKS

Editorial

The Cook Islands Herald

RAROTONGA, Cook Islands (Jan. 7) - Should the Government really be undertaking major projects like a new Parliament building when the financial impacts of removing import levies are not yet known?

These are the types of priority questions that ought to be raised in the New Year once Government’s policy wonks have shaken off the hazy effects of holiday festivities.

For a start, a number of issues are looming on the horizon and Government will be forced to undertake some key decisions in the weeks ahead. Among those decisions will be how to deal with the impact of getting rid of our import levies. If there’s going to be less money to spend next year, where would the cuts be imposed? The new Parliament building project? MPs’ salaries? Ministerial Office budgets? How about roads and other infrastructure upgrades?

The Finance Ministry’s Half Year Economic and Fiscal Update, which was released this week, points out that the move to slash most of the levies by 1 July will result in a cut of $6.3 million in revenue.

Politically, Government can score points with consumers if the prices of goods drop as a result of taking the axe to import levies. The taxation on imports is also a bureaucratic headache for Revenue Management and an annoying barrier to business. Ever tried thumbing through the Harmonized Tariff book looking at the maze of applicable fees?

In general, the country’s fiscal position is sound, according to Finance officials. Revenue projections have been revised upward thanks to a higher tax take over the five months up to November 2005. The estimated operating surplus has jumped up from $1.8 million in the Supplementary Budget Appropriation to a projected $4.5 million. Taxation revenue for 2005/2006 is now projected at $69.6 million – up from $67.6 million. And the Total operating revenue is projected at $81.8 million – up from the appropriation figure of $79.3 million.

However, where there is uncertainty is over next financial year – 2006/2007. According to the Half Year Update, the operating revenue for 2006/2007 has a projected estimate of $78.7 million. That’s $600,000 less than this year’s appropriation for government spending ($79.3 million) – or $3.1 million less than the revised operating revenue projection for this year ($81.8 million).

At this early stage, there is "limited scope" for increased spending in the next fiscal year. The Update points out that unless there are exemptions, or tax increases elsewhere, this is the scenario that we have to deal with.

So faced with the possibility of no increases in spending – or worse, cutbacks – where does that leave new projects? The new Parliament building is only one such initiative, which appears to have been pegged for local funding. How important is it? The public will find out within three months once the Budget Policy priorities are developed in March.

One possible way out for a strained Government to keep its new projects on line is the new freedom to enter into loan arrangements. According to the Finance Ministry, Government has the ability to borrow to finance high priority infrastructure projects now that the commitments of the 1998 Manila Agreement have expired.

That Agreement prevented Government from entering into commercial borrowings for a period of seven years unless certain conditions were met. The commitment expired last September, giving the Government greater scope.

January 12, 2006

The Cook Islands Times: http://www.ciherald.co.ck/Times.htm

Copyright 2005 © Elijah Communications Ltd. All rights reserved

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