Call for Papau New Guinea to cut GST on basic food items

Politicians in Papua New Guinea will soon be considering the country's budget for 2025 after a turbulent year in which many communities have suffered.

Academic Andrew Anton Mako, who works with both the University of PNG and the Development Policy Centre at the Australian National University, said MPs should learn from how Fiji has helped people in the short-term.

This includes changes to the way Goods and Services Tax (GST) is applied and more targeting of social transfer spending.

Anton Mako spoke with Don Wiseman.

(The transcript has been edited for brevity and clarity.)

Andrew Anton Mako: So this year, we started off with a riot early in January that really rocked the nation. And then, we had on the political front, a vote of no confidence. But I think the major issue that this country is facing is really on the economic front. It has been a tough year, especially for middle and low-income earners, because the high cost of living pressure that people are facing. So, in the upcoming national budget, if the government could review some of the policies and especially put in some measures to alleviate the high cost of living pressure that people are facing.

Don Wiseman: Written into the PNG Constitution, is the line 'to achieve an equitable distribution of incomes'. And one of the ideas that I think you've been looking at is what Fiji has done. How would that apply?

AAM: Yeah, so Fiji has done a lot of things in the last few years, and in this year's budget, they put together programmes that would help, in fact, put money in the pockets of low-income households, including school fee assistance, disability assistance, money to help rural pregnant women and a number of other programmes. Another important fiscal policy that they put together is to have two sets of VAT or GST (Goods and Services Tax). So, 0% for basic goods and services that low-income earners depend on for daily purposes. And they've also set up an another rate, which is 15% on goods and services and items that can be afforded by higher-income earners. I think those policies could be adopted in Papua New Guinea.

DW: PNG at the moment, has got a blanket 10% hasn't it? If it was to remove the GST of basic food items would higher GST generate the same amount of money, or more money?

AAM: You would need to balance it out. Of course, there needs to be some economic modelling around it, but I think it's fair to say that GST could be removed from basic food items like flour, sugar and tinned fish, cooking oil, the basics, that you know the low-income earners depend on daily, for their daily sustenance, right? We can do that and then perhaps increase GST on other goods and services that can be afforded by high-income earners. I think that can easily balance out. The PNG, government has done a number of things to support low income earners, for example, by increasing the tax free income threshold to 20,000 kina. But I believe we can do much better. I mean much more than that as well. And and then Fiji provides very good examples.

DW: One of the other things in the Fiji system that you're very keen on is their social transfer system. And you touched on this, I think, at the beginning, in terms of money for pregnant women and whatever, and what we're talking of is a lot broader than that, in terms of the elderly and the disabled and so on and so on. But how do you get that money to these people?

AAM: In Papua New Guinea, it's a challenge. So, Fiji has set up a system where they've got a robust system where these transfers can be made. But in Papua New Guinea, it doesn't mean that we cannot try. We can maybe take a year or so to put together the systems and perhaps work with the private sector, maybe the mobile phone companies and all that, to transfer assistance, financial assistance, to the people that deserve, like those with disability, the older people. Those people, I think they deserve to be assisted. At the moment, the PNG government is spending a lot of money on the slush fund given to the members of parliament. We have seen over the years that that money is most of the time not used properly. We have a lot of governance issues around that. So I think at least, cut back on some of these monies and then allocate to people that really need it, the disabled people, the older people, I think that would make a big difference in the lives of our many Papua New Guineans.

DW: You'd say that those riots back in January were a highly important event in terms of what they indicated about dissatisfaction and unhappiness in the community. And you would see fixing the tax system in this way as perhaps alleviating that.

AAM: Yeah, you know, the government has to show that they are doing something to help the people. I mean, in the January riot, there were many factors. There are many underlying factors - the crime, corruption and lack of basic services. And then on top of that, the high cost of living that people are facing. And to be fair, Papua New Guinea has always been a high cost economy in terms of the high cost of security, the high cost of delivering basic services and all that. It doesn't mean that we should have to just leave it like that. The government has to come up with policies so that the cost of doing business and cost of service delivery in the country has to fall. And some of the measures that we could take, these are long term measures that the government can take so that the structure of the economy is reformed, so the cost of doing business in PNG comes down. Those are long-term plans. But in the short term the article that myself and Professor Stephen Howes put together is basically about short term measures, short term measures that can be put together to alleviate the high cost of living pressure that people are facing at the moment. So things like having two GST rates in the country, one zero rated for basic food items, social transfers. Currently the government is providing school fee assistance. Those things are important. We have to do more so that the people see that the government is doing something to address the high cost of living pressure in the country.