Papua New Guinea’s 2022 Budget to address budget repair

Welcome,

Papua New Guinea’s Treasurer Ian Ling-Stuckey is expected to deliver his third National Budget tomorrow (Thursday), with a major focus on managing the country’s K6 billion budget deficit. There will be new spending, however, while new revenue measures being considered include a ‘super tax’ on the country’s largest bank and largest telco.

The Treasurer, Ian Ling-Stuckey, is expected to present his second budget tomorrow (Thursday).

According to the 2022 Budget Strategy Paper, released last month, the government’s expected budget deficit for 2022 is K6.095 million, or 54.2 per cent of GDP. PNG’s debt-to-GDP is not expected to return to below 50 per cent until 2027.

Budget repair is therefore expected to continue.

The challenge for the government, as articulated in its strategy paper, is to address the deficit while at the same time ‘continuing with strategic capital formation necessary to continue to enable the private sector and community at large to grow the economy, in particular the non-resource sector, expand the tax base and enhance the cost effectiveness of the delivery of essential services.’

Both government revenues and expenditure are expected to grow in 2022.

‘The capital budget is anticipated to grow significantly with increased GOPNG PIP programs. Strong growth is also expected from donor grant based assistance,’ the strategy paper suggests.

Revenues are predicted to grow as the result of increased revenues from existing corporate, mining/petroleum and goods and services taxes.

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Budget goals

The stated budget goals, as articulated in the strategy paper, are to:

  • spend the money we have more wisely
  • raise the revenues more fairly
  • finance the debt more cheaply
  • leverage friendly international support more intelligently
  • focus on growth in the agriculture, forestry and fishing sector, SMEs and the informal economy
  • distribute resource benefits more equitably
  • stimulate non-resource growth back to at least 5.0 per cent annually
  • comprehensive Government SOE reform program for cheaper energy, internet and water
  • getting foreign exchange flowing more freely
  • create at least 10,000 jobs annually

Dominant player levy

One revenue measure flagged in the 2002 Budget Strategy Paper that looks set to be controversial is a proposed new levy on ‘dominant industry players’.

Ahead of the Budget, the National Executive Council’s Decision 329/2021 has approved the introduction of this levy on ‘dominant industry players’ in the banking and telecommunications sectors.

While the levy is not certain to be implemented, it would in theory apply to any company with more than a 50.1 per cent share of either market. The NEC decision sets the banking levy at K190 million per annum, while the telecommunications levy has been set at K95 million per annum. There is a provision for each levy to increase annually by five per cent.

The levy would be payable on top of the companies’ existing tax obligations and is clearly aimed at just two businesses: BSP Financial Group (BSP) and Digicel.

BSP, which has around 70 per cent market share, posted a net profit of K890 million in the 2020 financial year, on turnover of K2.15 billion.

In the year ending 31 March, Digicel Pacific, of which Digicel Papua New Guinea is the largest single subsidiary, reported US$450 million (K1.58 billion) in revenue, and adjusted earnings [before interest, tax, depreciation and amortisation] of approximately US$222 million (K780 million). It is estimated to have a roughly 90 per cent share of PNG’s telecommunications market.

With BSP having a large PNG shareholder base, including the country’s largest superannuation funds and the State of Papua New Guinea itself, and Digicel currently the subject of a takeover bid by Australia’s largest telco, Telstra, the levy is likely to provoke debate.

Business Advantage PNG is hosting a special live-streamed Papua New Guinea Budget Update next Tuesday 30 November at 10am PNG time. To register for this free event, click here.

Comments

  1. Reuben Kerai says

    These decision will stop non essential services of B.S.P. Financial Group and Digicel Pacific here in P.N.G.
    The imposing of levy will affect these two business operations apart from the already corporate tax obligations they have towards the state.
    A thorough debate on this matter is a must so that the decision is rescinded in the best interest of businesses operating in the country.

  2. Mathew Pikuel says

    Hopefully, this additional levy will not be passed down to consumers at the retail end…

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