03/04/2020
K5.6b More a Revised Budget Than an Economic Stimulus Package
Following the announcement by Internal Revenue Commission (IRC) on deferrals of tax lodgements and payments, the Government of Papua New Guinea, in its emergency parliamentary sitting on 2nd April 2020, approved a massive K5.6 billion economic stimulus package in light COVID-19. What makes the stimulus package more a revised budget than an economic rescue plan is that there is more emphasis on revenue raising than giving details about how the K5.6 billion will support PNG’s economy through the COVID-19 pandemic period. Announced revenue raising plans are as follows:
1. K2.5 billion in extra domestic funding raised through a COVID-19 Treasury Bond to support frontline health emergency services
2. K600 million credit line support from banks and financial institutions for a 3-month interest/principal repayment holidays
3. K1.5 billion in foreign support through IMF, World Bank and ADB for health and economic response
4. K500 million from superannuation funds for members’ access, which is members’ own contributions
5. K500 million for health, security and economic sector, with no mention of revenue source
Details of economic measures in response to COVID-19 are uncertain except for three areas which are, 1. Deferral of loan repayments, 2. Early release of members’ superannuation savings, and 3. Deferrals of tax lodgements and payments.
Given the circumstances, government expenditures should be concentrated more on Current Spending than on Capital Spending. This will mean more expenditure on wages including job keeper subsidies to help struggling businesses to keep their employees on the job. The K5.6 billion economic stimulus package lacks details in the following areas which are critical to rescuing the country’s economy during the time of economic down turn brought about by the COVID-19:
1. Job keeper payments for SMEs to compensate for revenue reduction caused by Covid-19. This should include apprentice wage subsidies for organisations that currently have apprentices and trainees
2. Cash flow boost payments for SMEs
3. SME loan scheme for working capital
4. Insolvency relief for businesses and directors who might be forced to trade in insolvency
5. While IRC’s announcement on deferral of tax lodgements and payments are commended, more details are required on
a. An increase in asset write-off threshold
b. Rate of accelerated depreciation on the cost of new depreciating asset
c. Salary and wages tax variance
d. Remission penalties
In order to keep the economy functioning, more cash must be injected to boost business activities as well as keeping people employed to encourage more spending. The treasurer has announced the stimulus package. What the country requires following the announcement is clearly detailed economic measures linking everything back to the two important principles on which the rescue package is based on, 1. PNG Driven, and 2. Inclusive for businesses and individuals both in urban and rural PNG.
