Oct 19, 2018 Last Updated 6:03 AM, Oct 9, 2018

Cook Islands has announced it will remove the unpopular withholding tax this year as part of new measures to be introduced following the recent review of its taxation system by a team from the International Monetary Fund. The new changes, outlined by Minister for Finance Mark Brown, are to be legislated over two sessions of Parliament, the first was last month and the second in a proposed session in February 2014. Cook Islanders pay 15 percent withholding tax on their bank interests and revenue collected goes to the payment of the Cook Islands government’s obligation to Toa Petroleum, a private fuel business in Rarotonga that the government had tried to nationalise but failed. In a long-standing entanglement with the company that eventually led to a court case in 2009 and the issue now widely known in the country as the “Toagate” debacle, Cook Islands is obliged to guarantee that Toa Petroleum achieves a profit of NZ$1.2 million in a given year.

Toagate: If Toa Petroleum fails to make that target, the Cook Islands government must top up Toa’s profits to reach NZ$1.2 million. To fund that, the government had introduced the withholding tax on bank interest in 2011, which it now confirms it will remove. Interest income will now be included as personal income. “This will reduce our revenue by NZ$600,000 in 2013/14 and by NZ$1.2 million in 2014/15,” said Brown when announcing the list of possible taxation changes in Parliament last June. “I acknowledge that this has not been a popular tax but it was necessary to allow us to finance the Crown’s legal obligation to provide NZ$1.2 million profit guarantee to Toa.” Since the court ordered the government to provide that guarantee, it, according to Brown, has paid Toa Petroleum NZ$7.3 million. Changes generally are expected to benefit lowincome earners, although overall, Value Added Tax will, from April this year, increase from 12.5 percent to 15 percent. Income tax threshold has increased from NZ$10,000 to NZ$11,000 while government will slightly increase welfare payments in all categories beginning in February.

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Minimum wage to go up?

The stage is set for Papua New Guinea to increase its national minimum wage next year, in a move which is seen as providing much-needed redress for the country’s labour pool. The decision to consider revising the rate of pay, which has remained untouched for the past five years, forms a key part of the government’s plans to create a more inclusive, modern economy. However, with much of the workforce still operating in the informal economy and a lack of skills leaving many locals unable to participate in key projects, the government will be keenly aware of the challenges ahead.

PNG’s minimum wage was increased from a fortnightly rate of K30 to K74 when last reviewed in 2008, marking a rise of 146%. A newly appointed board began a series of public hearings in October, with its findings to be submitted to the National Executive Council in January 2014. The timing of the latest review should work well for PNG, which has enjoyed several years of impressive economic growth and high levels of international investment. A US$19 billion LNG project has been instrumental in driving the economy forward, helping the country to notch up average annual GDP growth of 9.5% between 2009 and 2012.

The current minimum wage has provided a stable foundation for investors and industry to predict labour costs, but it has not kept pace with inflation, which has averaged 6.4% since 2009. This is lower than expected given the rate of economic growth, but price increases remain a concern. Inflation peaked at 8.6% in 2011, dropped to 2.2% in 2012 and is expected to come in at 5.5% in 2013. While the LNG project has spearheaded PNG’s economic expansion, a few locals were able to contribute to its construction due to their lack of skills, finding themselves sidelined in favour of foreigners.

A large part of the local workforce—around 40%—is employed by the informal sector, according to a World Bank survey. Of these, around 80% hold jobs in the wholesale trade, retail, restaurant and hotel sectors. Of people who work in the formal economy, 47% hold positions at private companies, while another 37% are employed by the public sector or the military.

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It’s no denying that Vodafone is world number two in the business of mobile phones—even in the Pacific—but all that is about to change. News was abuzz in the telecom industry late November that the carrier—which has carved a household name in practically every continent—Africa, Asia, America, Europe and the Pacific region—is about to off-load part of its wireless stake as early as 2014. It follows moves by AT&T—the largest telecom carrier in the United States—to expand out of the mainland US where competition has restricted its growth and potential earnings. Last September, Verizon Communications signed a deal to grab 45% of Vodafone as part of acquiring Vodafone’s US business for US$130 billion. The transaction marked one of the largest todate in corporate history but it also became part of Vodafone’s slow disintegration process.

AT&T entered the scene of Vodafone-Verizon Wireless last month but Verizon showed little interest in AT&T’s offers. But market insiders reckon AT&T and Vodafone have huge business together as any merger between the two carriers would create the world’s largest telecom name. Combined, Vodafone and AT&T would be ranked a major global force in the telecommunications world with an unparalleled market capitalisation boasting around US$250 billion.

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Deadline looms for PNG

Oil Search will find out this month if the Papua New Guinea government can raise $1.68 billion to avoid giving up its 14.6 percent stake in the company to an Abu Dhabi state-owned wealth fund, which could then expose the company to a takeover tilt. If the PNG government is forced to give up its blocking stake in the Port Moresby-based Oil Search, it could provide a chance for the likes of ExxonMobil, France’s Total or Royal Dutch Shell to move in and attempt a takeover.

The PNG government is expected to announce before Christmas whether it will relinquish its stake to the Abu Dhabi sovereign wealth fund, International Petroleum Investment Company (IPIC). In March 2009, the government struck a highly complex financial agreement to fund its share of construction costs in the country’s flagship liquefied natural gas project, PNG LNG. To secure funding, the government issued a five-year exchangeable bond to IPIC, raising US$1.68 billion.

The bond matures in March, when the government is due to transfer its 14.6 percent holding to the sovereign wealth fund. Oil Search’s management has just finished an investor week in PNG and is understood to be sounding out interest from overseas funds in the 14.6 percent stake, to get on the front foot in the event the government gives up the stake and IPIC opts to sell it. One person familiar with the matter said: “The concern for management is if they don’t take a pro-active role, they open themselves up to someone they don’t want on the (share) register”.

Both Shell and France’s Total have made no secret of their ambition to establish an LNG foothold in PNG and Oil Search could be just their ticket. Oil Search has a 29 percent interest in the US$19 billion ExxonMobil-operated PNG LNG project, which is set to come on stream in the second half of next year. The PNG government could extend the bond or issue a new one, and it has indicated a desire to resolve the issue “sooner rather than later”.

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From a ravaged war-zone 20 years ago to a prime tourist spot every visitor to Papua New Guinea would love to see. That is Bougainville, PNG’s mineral-rich island province where dissidents once claimed a secessionist state in an attempt to break-away from the national government in Port Moresby. Boasting one of the world’s largest copper mines until its closure in 1989 after a bloody and long-drawn civil war that erupted between warring landowners, Bougainville has seen the toughest of times.

But gone are the relics of war and so too the armed gangs which once frequented the streets or places like Panguna, where the mine once stood. “The people here are very, very friendly,” says CEO of Bougainville Tourism, Lawrence Belleh as foreign reporters began calling him last month in the wake of the release of the new film Mr Pip shot on the island. “You can walk on the streets during the night unlike Port Moresby,” he claimed in a reference to a recent spate of street violence in the nation’s capital and other provincial towns. Tourism is being put on the front page of the economy with a new website promoting the island’s coolness.

“We still have the rawness in the natural environment and everything people would want to see, especially with ecotourism that is around here in Bougainville,” Belleh said. Based on a novel Mister Pip by New Zealand author Lloyd Jones, the new movie which captures the highs and lows of the island’s natural attractiveness, is now captivating audiences world-wide. “Some of the actors and scenes you see in the film are actually the experiences people had experienced during the height of the crisis,” said Belleh. Mr Pip’s adventurous showpiece which featured some local cast added a new perspective to the island’s attempt to revitalise tourism in the aftermath of the civil war.

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Guide to the 49th Pacific Islands Forum Leaders Meeting – Nauru 2018

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