Fiji’s 2020-21 National Budget will see the Government attempt to spend its way out of the COVID-19 induced recession.
“Barring drastic intervention, our economy may never fully recover; not this year, not next year, not decades on from now. That’s what is at stake; not only our economy, but our children’s economy,” Minister for Economy Aiyaz Sayed-Khaiyum said in his Budget address on Friday night.
Sayed-Khaiyum said the budget has been guided by the need to: bring back jobs (especially in the tourism sector) by bringing down taxes, retain a safety net for the unemployed and workers who have had their hours and salaries cut, and to “get Fiji working again”.
The $3.67 billion budget will see Fiji’s deficit drop to 20.2%, pushing the debt-to-GDP ration to 83.4%.
Sayed-Khaiyum says borrowing at this point is an “investment in our future” not a debt-trap.
“Borrowing now to build for tomorrow means future generations can borrow less. And a growing economy with a skilled and educated workforce generates more than enough national wealth and tax revenue to repay debt and invest in the future,” he says.
Khaiyum says Fiji cannot rely solely on domestic consumption, and that economy’s recovery hinges on holding its place in the global economy. The government is providing for a wide range of tax breaks, aimed at stimulating business and consumer spending.
The government has also tabled reforms to improve the ease of doing business.
Sayed-Khaiyum says budget will be funded through external financing from multilateral partners such as the Asian Development Bank (which has approved a US$200 million loan to boost private sector investment in Fiji), Asian Infrastructure Investment Bank, World Bank and bilateral partners.
A third phase of COVID-relief payments has also been funded to the tune of $20 million. The Fiji National Provident Fund will again distribute this payment “because it’s fast, familiar and accessible, and its database is amongst the most reliable.”
The Minister has told Fijians that the pandemic and its impact is a test of character, and:” the single most patriotic thing you can do in this defining moment is place your belief in our people’s potential. If you are running a cashed-up business, invest now and build for the future. If you see new business, support it. If you see a new Fijian-made product, buy it. If you know a hard-working person out of work, hire them. And do so knowing that this government shares that commitment: We won’t allow our people to fall into an abyss. We believe in the great power of positivity; a positive outlook fosters not only a friendlier Fiji, but a more active economy.”
Other key points from the 2020-21 Budget:
Social protection
- People fully unemployed due to COVID-19 will continue to receive $220 per fortnight
- People working reduced hours will receive $44 per fortnight for every 2 days they are not working
- People whose salaries have been more than halved can access a one-off payment of $1100 from their FNPF General Account. The government will top up those without sufficient funds in their FNPF account
- People who have been unemployed for more than six months will now be able to access funds
- Free education and free textbooks will continue, school transport will continue to be subsidiesd, health care remains free, NGOs that work with government will continue to be funded
Debt management
- Refinancing of concessional finance with multilateral and bilateral partners is underway
- The government says it has been parking money in a sinking fund, and the $450m saved will be enough to cover the principal and interest rate on the US$200million global bonds which mature on 2 October 2020.
Government spending:
- No pay adjustments for the civil service, except for all Permanent Secretaries, CEOs and Heads of Commissions and Independent Bodies who will see a 10% reduction in salaries
- MPs will continue to have a 20% paycut through 2021
- Spending on civil service overtime, meal claims and other allowances wil be reviewed and curtailed
- Funding has been allocated for “shovel ready” sites including the new maternity wing at CWM, construction of the new Prime Minister’s Office complex, completion of new and refurbished police statons, new sporting facilities, hospital upgrades and agro projects
- With the IFC, the government is finalising a PPP financing model to allow for construction of multi-story housing projects across Viti Levu
- However the PPP agreement with Aspen Medical to revamp the Ba and Lautoka hospitals has been delayed for one year
- Education sector spending- especially the Tertiary Education Loans Scheme (TELS)and National Toppers Scheme will be reviewed and tightened
- Government missions in Washington DC, Seoul, Port Moresby, Brussels and Kuala Lumpur will be closed
- The third cane payment of this season will drop from $85 to $70 per tonne
- Parenthood Assistance Payments announced last year will be suspended
- Funds have been allocated for new police stations, promotion of officers to senior positions and for expanded police recruitment
- As has hiring of 223 intern nurses, 40 midwifes and advancement of 105 medical interns. Moving forward, inernships for doctors will be two years.
Tax reform
“In this year’s budget, sweeping tax reform is front and centre. To call it “reform” in itself is an understatement; this year represents an overhaul –– one that will be vital to driving new economic activity…we’re announcing Fiji’s biggest ever tax cut.”
To businesses who will benefit from custom duty cuts, the Minister said, “the nation needs your generosity not your greed.”
- Abolition of all stamp duties
- VMS introduction will be further deferred to 1 January 2022
- Removal of VAT reserve charge
- Supply of residential accommodation to be VAT exempt
- Fringe Benefits Tax deductible for tax
- Reduction in certain tax penalties
- Import excise has been reduced to 0%
- Customs duty has been reduced or cut entirely for 1600 items in what the Minister calls “the duty-discount of the decade”
- Removal of business licenses from 1 August 2020
- Reduction in duty on hybrid and non-hybrid vehicles
Incentives
- New incentives for medical investments including income tax exemptions for new private hospitals of between $2.5 and $10 million, investment allowance for the refurbishment , renovation and extension of hospitals and income tax exemptions for establishment of ancillary medical service centres.
- Reduction in fees for former Fijian citizens wishing to reclaim their citizenship, plus new categories of permanent residency to encourage investment and business
- 150% tax deduction for companies listing with the South Pacfic Stock Exchange
- 150% tax deduction on interest paid on corporate bonds
- New income tax and import duty deductions for investment in the business of sub-division of lots for residential or commercial purposes
- 100% write off for the construction of new commercial and industrial buildings as long as building approval is obtained before the end of this year
- Mandatory employer and employee FNPF contributions will remain at 5% until the end of next year. Employers who chose to pay above this will get a 150% tax deduction
- $30m has been set aside to support micro, small and medium enterprises through highly-concessionary loan packages
- The telecommunications servicing license fee and the data levy introduced last year will be replaced by a flat 2% revenue based telecommunications license fee.
Tourism
- Reduction of ECAL from 10 to 5%, and raising of the threshold from $1.25 million to $3 million
- Removal of Service Turnover Tax on all prescribed services (it was previously 6%)
- Halving of departure tax to $100
- 150% tax deduction for hotels and resorts that hire local artists (craftsmen, dancers, musicians etc)
- The first 150K visitors to Fiji arriving on the national carrier will receive a travel stipend of $400
Other
- The First Home Buyers scheme will extended
- $200K to small municipal councils to make up for lost revenue
- The ban on Styrofoam will go ahead
- The Blue Town Model in Savusavu is to be launched
Government allocations (in descending order)
- Education $450.6 m
- Health $394.3 m
- Fiji Roads Authority $348.9m
- Police $200.6m
- Water Authority of Fiji $195.4m
- Women, children and poverty alleviation $159m
- Commerce, trade and tourism $87.1m
- Higher education $81.4m
- Military $81m
- Agriculture $65m
- Sugar $53.6m
- Infrastructure and Meteorology Services $30.6m
- Waterways and Environment $15.9m
