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New loans account for budgetary leap

By Helen Greig

RAROTONGA, Cook Islands (Cook Islands News, July 25, 2009) - The new NZ$215.5 million [US$141.5] annual budget has been described as the ‘mother of all budgets’ by finance minister Sir Terepai Maoate.

The minister said the 2009-10 budget, tabled in parliament yesterday, was probably the most difficult to put together.

The budget represents an increase of over 52 percent on last year’s NZ$141 million [US$92.5 million] budget.

Sir Terepai says the major contributor to the increase is the expenditure funded through new loans this year.

Government plans to spend NZ$82.5 million in loans received from China and the Asian Development Bank this year on development and infrastructure such as the resealing of Rarotonga roads.

Sir Terepai said the Cook Islands faces the same challenges as countries around the world, including the global financial crisis and the economic uncertainty that prevails.

He acknowledged that the country is feeling the slow down in economic activity as a result of the crisis. Governments around the world are placing high priority on policy responses intended to smooth out and minimize possible downturns through economic stimulus at the same as constraining spending in the public service.

"It would appear that those governments who have worked to reverse this global crisis through implementing economic stimulus are experiencing signs of early recovery. Prudent spending by governments in my view will also be the key to recovery."

Sir Terepai described the budget as a carefully conceived policy response to safeguard the social and economic wellbeing of the country in uncertain times.

Opposition MP Norman George took a swipe at the ‘mother of all budgets’ during the minister’s speech calling it the mother of all disasters.

Parliament adjourned after the minister’s speech until Tuesday to enable members to study the budget bill.

The budget has an operating surplus of NZ$2.9 million compared with an actual estimated shortfall of NZ$3.1 million in 2008-09 due mostly to revenues coming in lower than expected.

This year government has used NZ$1.3 million of the reserve fund to finance the overall non-operating balance of the budget.

Total operating revenues for the new budget are estimated at NZ$96 million – an increase of 2 percent on 2008-09 estimates. Sir Terepai says this increase represents the extra revenue to be generated by the recently increased departure tax and increase in trust registration fees, rather than improvement in economic activity.

Tax revenues came in $2.2 million lower than budget estimates for 2008-09, ending the growth in this revenue in past years.

"Going forward all other taxation types are expected to grow at a significantly slower rate in 2009-10 despite large one off regional and international events being hosted in the Cook Islands early in the fiscal year," said the minister.

Spending will likely decrease this year by four percent with an operating expenditure of N$93.1 million for 2009-10.

"This predominantly reflects the use of a generous cash aid grant from the Peoples Republic of China to finance government’s contribution to the operating costs of the Pacific Mini Games 2009, as well as government’s decision to enforce efficiency gains in the form of a two percent cut in the budgeted operating costs, for all departments whom receive base funding from the Crown."

As in the previous budget, NZ$1.1 million has been allocated for increase in loan reserves and another NZ$400,000 increase in the reserve fund.

"These are funds kept away for a rainy day. And the rainy days have come."

Priority budget initiatives for this year include a NZ$37.5 million upgrade of Rarotonga roads and water networks, using a NZ$16 million loan from ADB on development projects, the NZ$27 million upgrade to Avatiu Harbour, NZ$60,000 for four new police motorbikes, and a NZ$55,000 waste management strategy.

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