Unity Fiji

SPEECH BY THE LEADER OF UNITY FIJI, MR. SAVENACA NARUBE, FORMER GOVERNOR OF THE RESERVE BANK OF FIJI

Welcome

I welcome all of you to this launch of the Unity Budget for the financial year 2020 to 2021. It is not common to have a political Party present an alternative national budget. But we are in unprecedented times. Never before have we seen the quick and global devastation of this virus in the history of mankind. Over half a million people have lost their lives. In three months, COVID-19 has brought the global economy to its knees. Many countries are already fighting the second wave. There is no vaccine in sight, at least for the next 12 months.

Unity Fiji has decided to lead the charge to be proactive, to think outside the box, and to cross conventional boundaries in our genuine effort to save both lives and livelihoods. We have decided to deliver an alternative national budget which we are calling the Unity Budget. Unity is a key word in these difficult times. In my mind, we must work together, not for the sake of politics, not for the sake of our own egos, not for the sake of the next elections, but for the sake of the hundreds of thousands of families that are suffering from reduced or no income at all. We owe them and their families all the support that we can give them NOW.

Why prepare an alternative budget?

Preparing national budgets is not an easy feat. So, why has Unity Fiji decided to prepare an alternative budget? There are two reasons:

• Soon after the start of the pandemic, we have been releasing suggestions on ways that we can best respond to the threat of COVID-19. It is therefore logical that we pull all of our proposals into an alternative budget.
• We are encouraged by the positive feedback of our proposals. Unity Fiji had offered our assistance to Government to help put a roadmap together. Many people have asked us: “We like your proposals, but will this Government ever listen?” We all klnow the answer to that question. This has led us to deliver this Unity Budget today.

Let me also reveal that some people have told us that they do not like us offering suggestions to this Government. I believe that their concerns are misplaced. In my view, if we help the Government do the right things, the people are better off. Alternatively, if Government fails to do the right thing, the people suffer. Therefore, if we really put people first as our Unity Fiji logo says, as a Party we have no choice but to offer our help. What the Government does with our suggestions is entirely its decision.

In my mind, this is not the time to play political games. It is not the time to withhold contributions for political gains. When hundreds of thousands of our people are suffering, we must all stand up and help.

Are we qualified to prepare a national budget?

Many will ask whether Unity Fiji has the credentials to prepare this Unity Budget. The short answer is a resounding yes! What are these credentials?

• First, I have prepared many national budgets as the former Permanent Secretary for Finance. I know the techniques of budgeting. I know the financial challenges that we have brought upon ourselves through poor financial management which has handicapped our ability to fully respond to the ongoing economic destruction of the COVID-19. More importantly, I know, through practical experience, not textbooks, possible solutions to these problems. I am the only Permanent Secretary for Finance in the modern era that had posted a budget surplus.
• Second, as a former Governor of the Reserve Bank of Fiji, I had rescued the Fiji economy in the past two crises in 2000 and again in 2006. I know what crisis management requires which are decisive, bold and quick actions.
• Third, I have worked at both the International Monetary Fund and the World Bank and understand the global economic context of this crisis.

Unity Fiji therefore believes that our credentials to prepare this Unity Budget is second to none. We are also signaling the people of Fiji especially the youths that we are capable of restoring fiscal stability to the country. We have the experience, the skills and the knowledge to rescue our beloved country from financial disaster. In short, we are fit to govern Fiji.

What type of budget is the Unity Budget?

We are calling this budget an alternative national budget. We obviously do not have the information to prepare a full national budget especially the specific allocations to Heads of Expenditure. This Unity Budget is therefore a policy and strategic budget. First we set the strategies taking into account the economic and financial projections. Next, we translate these strategies into revenue and expenditure allocations at the aggregate levels. Lastly, we identify specific revenue and expenditure measures achieve our strategies especially to restore stability into the government’s fiscal position.

Five Pillars

The theme of this Unity Budget is “Saving Lives and Livelihoods” under five pillars:

• People Centered (Overarching Theme): We must put people first. The incomes of one third of our working population have been reduced. Families are suffering which is turning to fear and desperation as the crisis is prolonged. The social impact in domestic violence, substance abuse and suicides are increasing. This Unity Budget is focused on easing the suffering of the people through the budget and not through their own savings. The centerpiece of our people centered approach is a $1 billion cash support to the income of workers that have been affected by the pandemic. The second is the additional allocation of $10 million for welfare support. The third is the extension of price controls to keep the cost of living down.
• Innovation: These are unprecedented times. Conventional thinking will not work. A prolonged economic crisis will impose increasing suffering on our people. This Unity Budget introduces innovation and creativity in finding the solutions to ease the suffering and get us back on our feet as soon as possible.
• Support Growth: The Unity Budget will support growth through a combination of fiscal and monetary policy measures. On the fiscal front, the Unity Budget allocates $350 million to a capital program with high impact on economic growth. On the monetary side, money supply will rise through quantitative easing which will maintain liquidity and keep interest rates low.
• Reallocate Savings: The Unity Budget will redirect government spending of $1 billion away from wasteful and nonessential spending to higher priority areas like health, education, infrastructure, law and order and welfare.
• Reduce cost of debt: The Unity Budget proposes measures to reduce the cost of debt by $80 million per year.

Impact of COVID-19

We all know the widespread impact of the COVID-19 crisis. Let me summarise them:

• Jobs: We estimate that more than 130,000 workers have either lost their jobs, on reduced pay or on leave without pay. This is more than one third of the formal work force. Furthermore, this number does not include those in casual employment. This number is expected to continue to rise.
• Businesses: Most businesses are suffering from lower sales leading to tight cashflows. Many micro and small businesses are expected to collapse and never rise again.
• Government Revenue: Government cannot collect 70% or $1.5 billion of its budgeted revenue.
• Debt: In the COVID-19 budget, the Government revealed that the national debt would rise to over 60% of GDP. With the numerous demands for expenditure and the need to rescue the economy which only the Government can do, we expect debt to rise to over 80% of GDP before the crisis is over unless we take the necessary measures proposed by the Unity Budget.
• Economic Growth: The Reserve Bank of Fiji expect the economy to decline by 21.7% this year. This is the largest economic decline in recorded history. With no end of the virus in sight, the economic impact will be devastating.
• National Income: Given the large decline in the economy and the reduction of inward remittances, we expect national Income (GNI) to decline by at least $2.5 billion in 2020 alone.
• Poverty: We estimate that poverty will rise to 50% of the population. This will push an additional 200,000 of our people below the poverty line.
• Social impact: Serious social issues like domestic violence and suicide have increased reflecting the financial stress and tension in families as they struggle to survive without regular income.

Government Responses to COVID-19

We believe that the government’s responses to date to this unprecedented crisis could be bolder, clearer, quicker, and more decisive. The actual cash that Government was giving to the people to survive the greatest crisis of our lives was only $150 million or 15% of the total package announced in the COVID-19 Budget.

The Government has chosen to direct workers who have lost incomes because of the crisis to withdraw their life savings from the Fiji National Provident Fund (FNPF). We believe that this FNPF assistance is not only inadequate but unfair to the workers for being asked to deplete their retirement balances while Government supports businesses through the budget.

The Government’s handling of the economic effect of the crisis on workers has been heavy handed. A classic example is the amendment of the Act allowing employers to lay off workers due to COVID-19 being defined as an “Act of God”. It is tragic that Government has decided not to provide the people with hope and assurance that their livelihoods will be protected. Instead, they have used the instrument of the law to justify their actions on the faithful workers, mums and dads, tax payers, and all Fijians. We will remember this period of labour and employment relations as the lowest point in Fiji’s history.

Unity Budget Response to COVID-19

Please compare government’s response to Unity Budget’s response to COVID-19. Our response is people centered. We must take care of our people, the vulnerable, those that have lost their incomes, the aged, and the poor. Our approach is clearer and stronger.

We propose a three phased approach:

• The first phase are the immediate responses over the next six months to protect lives and ease the suffering of the people.
• The second phase are the medium term responses over the next twelve to twenty-four months to stabilize government’s finance and create more fiscal space to fund the rescue package that are needed to stabilize the economy.
• The third and final phase are the long term measures to pull the economy up again sustainably as soon as possible.

Details of the Unity COVID roadmap are in the Budget.

Economic Outlook

We were saying all along that the negative 4.5% economic projection for 2020 by the Reserve Bank announced in March was overly optimistic. And sure enough, in just after three months, the RBF revised its projection to a whopping 21.7% hole in the economy. That is the biggest decline in our history. I believe that the Government and the people have not fully wrapped their heads around the impact of this large annual decline on our lives. Let me put it simply. The financial hardship will get worse for a lot longer. As our safety nets wear thin, the impact on our daily lives will become more and more visible. It is therefore critical that we focus on easing the struggles of our people.

We do not share the optimism of the RBF of a quick 14% rebound of the economy next year. There are just too much uncertainties to be able to make an optimistic call. A combination of the health and incomes factors will make the recovery of tourism long and hard. The discovery, production, and distribution of a vaccine is an important factor in the revival of global tourist travel. The 14 day quarantine periods at both ends of an overseas trip (1 month in self-paid quarantine) will result only in travelers to Fiji being those for long term stay (employment and education). It is very likely that the short stay tourism that Fiji is used to may be a long way away. We therefore predict that we will not restore our tourist numbers until 3 or 4 years’ time. Without tourism, there is no other economic sectors that will take up the slack.

We therefore project the economy to register a modest growth of 3% next year, increasing to 5% in 2022. That means that it will take 5 years to get back to where we were before the crisis.

Fiscal Strategies

Budgets are constructed on fiscal and monetary strategies. The Unity Budget fiscal strategies are:

• Avoid severe reduction in total expenditure to help support incomes. Total expenditure is above the level of COVID-19 Budget and only 14% lower than the original budget for this year.
• Identify savings by eliminating wastage and delaying nonessential spending.
• To regain fiscal stability by keeping the deficit down, introduce temporary measures to share the burden of the government response to COVID-19.
• Increase budget support from donors to help keep the deficit down.
• Allow the fiscal deficits to rise in the next 3 years but through a program of revenue measures and strict priorities on spending, reduce to 3% after that. Debt will rise to 80% of GDP, but as the cost of the COVID-19 eases and with the measures included in this budget, this level of debt should trend back to 60% in 5 years and below 50% in 7 years.
• Introduce measures to reduce the cost of borrowing immediately. In this crisis, we can live with a higher debt stock as % of GDP as long as the cost of borrowing stays sustainable.

Monetary Strategy

We are of the view that monetary policy should play a more prominent role in this crisis by:

• Increasing money supply through government borrowing from the Reserve Bank. This is called quantitative easing. It will keep interest rates low. The threat to inflation and foreign reserves are low.
• Reducing the interest to borrowers by sharing the credit risks with commercial banks and government
• Maintaining a stable exchange rate.
• Safeguarding the independence of the FNPF from Government

Let me say here that we do not support the devaluation of the Fiji dollar. The competitiveness of our exports is not an issue. Devaluation will only lead to higher cost of living with no real gain in output.

Economic Strategies

To me, our economic strategies are clear. First, we must avoid the mistakes of the past. We must not waste our hard earned money. We must raise the quality of our spending. Second, we must introduce selective price controls. Third, we must start to build a diversified economy. We have been hit hard by the COVID-19 because of our concentration on tourism. Diversification does not mean that we allocate more money to the Ministry of Agriculture. Our past intitiatives in agriculture have failed miserably. We must first overhaul the model of development of all our resource based industries.

Summary of Unity Budget Measures

The main specific measures in this Unity Budget are: First, to help share the burden of the impact of the corona virus, the Unity Budget proposes the following:

• Reduce Minister’s salaries by a further 10% including all allowances;
• Reduce MP’s salaries and allowances by a further 10%;
• Reduce the salaries of top civil servants from Director upwards by 20%; and
• Reduce salaries of all other civil servants by a maximum 10% to a floor of $30,000.

Second, we have identified the following areas of savings:

• Grants to State Owned Enterprises (SOEs): The government grants to SOEs and statutory bodies have exploded and now stands at over $1.6 billion. FRA should concentrate solely on properly fixing potholes and reducing their overheads. We propose halving the grants and saving $800 million.
• Miscellaneous: There is an allocation of $200 million in Miscellaneous (Head 50). The allocation to this Head of Expenditure reflects poor budgeting and we propose reducing this to below $100 million.
• Special expenditures: This ambiguous group of spending has more than doubled in the last ten years to $119 million. We propose to reduce this by at least half saving $58 million.
• Vehicles: Government spends an average of $30 million a year in leasing vehicles and buying new ones. In my days at Finance, we spent less than $5 million on buying new vehicles. We will reduce this by half and also explore the possibility of reverting to owning rather than leasing vehicles.
• Consultancy payments: There was a $2 million allocation to consultancy in the 2019 budget which was for the services of the international public relations company GORVIS. This is a political luxury which we cannot afford.
• Recruit locals: We propose to review all contracts of expatriates in the civil service and SOEs to the view of localizing the positions if locals can meet the required attributes. We estimate that this will save $300 million in the medium term.
• Zero-based budgeting: The savings from the application of the concept of zero-based budgeting is conservatively estimated at $500 million without any impact on service delivery.
• Cost of debt: We will reduce the cost of debt by $80 million per year.
• Other savings: We have identified other savings amounting to $60 million.

Of the total savings of $1.5 billion, we propose to plough back $1 billion to priority areas by allocating an additional $100 million to health; $30 million to education; $350 million to infrastructure; $20 million to law and order; and $10 million to welfare support. The balance of $500 million of savings is used to reduce the deficit.

Third, to restore fiscal balance, we are proposing the following new revenue measures:

• Temporary increase VAT to 12% but exempt essential food items.
• Increase marginal tax rate by 10% points and those earning above $100,000 to 35%.
• Increase social responsibility tax by 20% points which applies to those earning over $150,000.
• Impose a temporary company tax surcharge of 20% points on those companies making super profits based on return on assets.
• Increase import duties on all passenger vehicles by 100%. Heavy machinery and trucks are excluded.
• Increase excise duties on alcohol and tobacco by 20%.
• Increase import duties on white luxury goods by 20%.
• Impose 10% NCD levy on all sugar, preservative, and salt-based products, carbonated drinks, and alcohol and cigarettes;
• Increase telecommunication levy by 10%; and j) Increase fringe benefit tax by 10%.

Fourth, to support economic recovery, the immediate focus is to raise demand, provide jobs and pull up the economy. In support of these aims, the Unity Budget proposes the following measures:

• Remove the Environment and Climate Adaptation Levy;
• Reduce the departure tax by 50%; and
• Increase fuel rebate/concessions to domestic shipping and fishing industry.

Fifth, the Unity Budget builds in the sale of $100 million worth of shares in EFL in 2021 and $150 million worth of ATH shares in 2022. These shares are only to be sold locally.

Lastly, we are also proposing medium term revenue measures that will help stabilize government finance.

We Are All In This Together

We have prepared this Unity Budget as our contribution to finding the best package that will help us sustain our livelihoods during this COVID-19 crisis and restore our lifestyles as soon as possible. The proposals are aligned to our three pronged attack of saving lives and easing the suffering of the people; restoring fiscal balance, and rescuing the economy. They are also built on the pillars of innovation and creativity, putting people first, and creating jobs.

We are all in this canoe together. Unity Fiji joins many others that have been calling for a united approach to fight this most potent threat to our lives and livelihoods. This Unity Budget is submitted in the spirit of unity and togetherness.

Unity Fiji commends this Unity Budget to the people of Fiji.

MAY GOD BLESS US ALL

Vinaka vakalevu