Equity and fairness.
These are the guiding words for the Minister of Finance, Sili Epa Tuioti’s Budget for 2017/2018 tabled in Parliament yesterday.
With estimated revenues of $852.3million and total expenditures of $934.2m, a Deficit $89.9m is forecasted.
“This Budget is about making the right choices to secure a better tomorrow,” Minister Sili Epa told Parliament.
“These choices must be based on the principles of equity and fairness. "
“We must choose to focus on growing our economy to provide more jobs and build a solid foundation for a better quality of life for everyone."
“We must choose to contribute to financing our development in a fair and equitable way. We must choose to guarantee the essential services that all Samoans demand."
“These are the principles that shape the Equity and Fairness theme of this budget. Every eligible person should contribute to the development of our country. At the same time the fruits of our development must be shared across to benefit everyone.”
Education and Health remain the priority.
The Ministry of Education, Sports and Culture gets the highest budget allocation of $100.3million, which is equivalent to 19.6per cent of total government expenditure.
The second highest budget allocation is $88.5million for the Health sector.
Infrastructure is allocated $46.99 million while Tourism gets $11.4million.
Commerce is allocated $7.7million while Agriculture and Fisheries is appropriated $14.1 million. $15.35million has been set aside as Unforeseen expenditure.
In his address, Sili noted the intention to review the public service to lift its performance and responsiveness to the delivery of efficient quality services required by our people.
He points to the productivity dividend, saying they have been able to implement it without any compromise on the services being provided which suggests that efficiency gains have been achieved in the way Ministries have spent their budgets.
He added that the economy has continued to perform well in recent years.
The budget’s recommendations are strengthening compliance with existing tax requirements, including compliance by taxpayers and improving the effectiveness of the revenue collecting agencies, including the Ministry for Revenue.
“Removing a number of exemptions and concessions to improve the equity of the tax system.
“Increasing non-tax fees and charges and indexing these fees and charges to ensure that the revenue raised more accurately reflects the costs of providing the services to which these fees and charges relate.
“Increasing a number of duty and excise rates and introducing an equalization charge on EPC; and introducing a Telecommunications levy.
The Government is also recommending changes in current taxation arrangements designed to ease the income tax burden on lower paid employees and sole traders; and lower export taxes and some duty and excise rates to support the competitiveness of Samoan businesses.
Sili says the anticipated revenue gains from this package of reforms are estimated to be $14.1 million in 2017/18, increasing to $30.6 million in 2020/21.
“The Review recommendations strike the right balance between raising the revenue we need to continue to strengthen and improve the services and infrastructure which Samoans rightfully expect, but at the same time recognizing that we need to ensure we do not place an unreasonable burden on taxpayers or prejudice business growth and hence employment opportunities.
“The findings also highlighted what we have known for some time.
“Not everyone has been paying their fair share.
“By removing concessions for which there is no clear justification, and strengthening our compliance mechanisms we can raise additional revenue without increasing the tax burden on ordinary taxpayers.
“In fact, by doing these things we can provide some modest but important and no doubt welcome tax relief for our lower paid citizens.”
The Minister of Finance, Sili Epa Tuioti, yesterday tabled his budget for 2017/2018 in Parliament. The theme for this year’s budget is “Equity and Fairness.” This is what he said in his budget address:
As required under Standing Order 131, it is my pleasure to present on behalf of the Government, the Statement on the Estimates for the fiscal year 2017/18.
I. BUDGET SETTING
Mr Speaker, Twelve months ago, the Government announced a budget that was framed to set a coherent and affordable agenda for the government as a whole and which aimed to maintain stable and sustainable macroeconomic growth, create employment opportunities for our young people and continue to deliver improved programs and services in areas vital to our continued progress.
The 2016/2017 budget was given the theme ‘Strengthening the Foundations: Building for Tomorrow’ to make it clear that we have work to do if we wanted to continue to strengthen the economy and improve opportunities for our people; and second that this was a process that would require on-going energy and commitment into the future. We wanted to build a strong and resilient foundation for sustainable growth in the years ahead for a better and equitable tomorrow for our people.
The budget strategy last year was designed to do the following;
• to consolidate our public finances and keeping expenditure under control
• to ensure we continue to provide the best possible access to quality essential education and health services
• to continue to build the enabling environment needed to support sustainable economic growth.
The Government then announced it would undertake a broad ranging review of revenue, covering all tax and non-tax revenues to ensure that we are not only collecting the revenue we need to maintain fiscal responsibility, and provide improved services and infrastructure, but that we are doing so with fairness and efficiency. The review recommendations provide a sound basis for us to move forward to provide the additional revenue the Government can reasonably expect without imposing unreasonable burdens on individual taxpayers or undermining the competitiveness of Samoan businesses. Importantly, they will also enable Government to provide some additional spending on priorities in infrastructure, education and health, while maintaining fiscal responsibility. Strengthening compliance and improving the equity of the tax system are central to the Review recommendations.
The theme for the 2017/2018 budget therefore is Equity and Fairness to align with the SDS 2016-2020 theme of ‘Accelerating Sustainable Development and Creating Opportunities for All’ and to ensure that everyone who should be contributing to tax revenues must do so. We also announced the intention to review the public service with a view to lifting its performance and responsiveness to the delivery of efficient quality services required by our people.
I am pleased to say we have completed the public expenditure reviews of the health and education sectors which are key priority sectors in our development agenda. These reviews have raised a number of important pointers that the government will take into account in the design of future programs for these key sectors to ensure the government provides the best health and education service for our people. Preparatory work on the review of the public service is ongoing and we expect this exercise to continue into the next financial year. On the productivity dividend, I am pleased to say that we have been able to implement it without any compromise on the services being provided which suggests that efficiency gains have been achieved in the way Ministries have spent their budgets.
Mr Speaker, I am pleased to inform Honorable Members that our economy has continued to perform well in recent years. This was confirmed by the IMF in their Article IV consultation with the government in February this year.
Economic growth was strong in 2015/16 growing at over 6% largely driven by the fishing industry, tourism, lower fuel prices, and further boosted by two major sporting events and infrastructure projects. Inflation remains subdued. The near-term growth outlook is positive. Barring any natural disasters, GDP is expected to grow at around 2 percent per year. Growth will be driven by improvements in the business climate, tourism, and construction, including infrastructure projects. The performance of the tourism sector is expected to further improve in the medium-term with increased funding to support targetted destination marketing in Australia and New Zealand and expected increased air services into the country in the latter part of 2018. The closure of Yazaki the largest manufacturing employer is estimated to reduce growth by about 0.9 percentage points for 2017/18 with a further reduction of about 0.1 percentage points in 2018/19. Average inflation is expected to pick up with increasing commodity prices but remain around 3.0 percent over the medium term.
This is a remarkable performance given the many challenges we have faced in the past few years. But we cannot afford to be complacent. We continue to face downside risks which underscores the need to press ahead with appropriate reforms to improve efficiency within the public sector, improve timeliness and quality of project implementation and to build business confidence.
The policy settings of fiscal consolidation and public sector reform combined with accommodative monetary policy will provide a sound platform to support a resilient economy going forward.
III. BUDGET STRATEGY Mr Speaker,
This Budget is about making the right choices to secure a better tomorrow. These choices must be based on the principles of equity and fairness. We must choose to focus on growing our economy to provide more jobs and build a solid foundation for a better quality of life for everyone. We must choose to contribute to financing our development in a fair and equitable way. We must choose to guarantee the essential services that all Samoans demand.
These are the principles that shape the Equity and Fairness theme of this budget. Every eligible person should contribute to the development of our country. At the same time the fruits of our development must be shared across to benefit everyone.
The Revenue Review that was announced at the 2016/17 Budget Statement was tasked to examine Samoa’s current taxation arrangements, including:
• Examining current tax bases and rates and providing advice on the extent to which they reflect reasonable contributions by tax payers;
• Identifying anomalies in current tax bases, tax rates and tax exemptions;
• The efficiency and effectiveness of tax collection and tax enforcement.
The Review was also asked to examine current taxation procedures and recommend improvements it considers will support the purpose and objectives of the review including:
• Reviewing the current arrangements for the granting of exemptions and concessions;
• Improving procedures for dealing with arrears;
• The use of tax holidays or other concessions;
• The use of tax credits;
The main features of the Review recommendations are:
• Strengthening compliance with existing tax requirements, including compliance by taxpayers and improving the effectiveness of the revenue collecting agencies, including the Ministry for Revenue;
• Removing a number of exemptions and concessions to improve the equity of the tax system;
• Increasing non-tax fees and charges and indexing these fees and charges to ensure that the revenue raised more accurately reflects the costs of providing the services to which these fees and charges relate;
• Increasing a number of duty and excise rates;
• Introducing an equalization charge on EPC; and
• Introducing a Telecommunications levy.
The Review has also recommended changes in current taxation arrangements designed to:
• Ease the income tax burden on lower paid employees and sole traders; and
• Lower export taxes and some duty and excise rates to support the competitiveness of Samoan businesses.
These changes would be introduced over the next financial year with timing dependent on changes to legislation and administrative procedures which would be required. The net anticipated revenue gains from this package of reforms are estimated to be $14.1 million in 2017/18, increasing to $30.6 million in 2020/21.
The Review recommendations strike the right balance between raising the revenue we need to continue to strengthen and improve the services and infrastructure which Samoans rightfully expect, but at the same time recognizing that we need to ensure we do not place an unreasonable burden
on taxpayers or prejudice business growth and hence employment opportunities.
The findings also highlighted what we have known for some time. Not everyone has been paying their fair share. By removing concessions for which there is no clear justification, and strengthening our compliance mechanisms we can raise additional revenue without increasing the tax burden on ordinary taxpayers. In fact, by doing these things we can provide some modest but important and no doubt welcome tax relief for our lower paid citizens.
Government is pleased to announce that there will be no increase in the rate of VAGST in this budget. But Government is continuing to review ways, including introducing changes to legislation to ensure full VAGST compliance by businesses at customs point of entry and at points of sale.
With the consequential revenue increase as a result of the Review, the Government will be in a strong position to honour its long-standing commitment to fiscal responsibility and provide some for additional spending on key priority areas consistent with the priority outcomes in the SDS 2016- 2020. Secondly, by strengthening compliance the recommendations greatly improve the equity of our taxation arrangements and demonstrate our resolve that everyone should contribute their fair share.
IV. BUDGET AGGREGATES Mr. Speaker,
I would now like to highlight the key components of the 2017/18 budget.
Overall Budget Deficit
Soft Term Financing
Credit Budget Support
Cash Surplus after Borrowing
The 2017/18 financial year Main Estimates is expected to record an overall fiscal deficit of approximately $81.9 million which is equivalent to 3.5% of the anticipated level of GDP. Government will continue to introduce and implement appropriate measures and revenue reforms to pave the way towards achieving its fiscal target of 2% of GDP over the medium term.
V. REVENUE MEASURES
Total Domestic Revenue is expected to increase by 6.3%. Total grants is expected to decline slightly by 1.9% as a result of donor funded project tailing off. It is envisaged that these levels will be sustained over the medium term as a result of the implementation of the Revenue Review recommendations summarized below.
These reforms measures include:
• Strengthen the Ministry for Revenue capacity in order to improve revenue collection compliance; This is expected to generate $4.5m in 2017/18;
• Improved compliance by the Ministry for Natural Resources and Environment in collecting land leases owing to the Government;($500,000 for 2017/18)
• Index fixed excise rates which includes revisiting import duties and excise on certain imported products; ($2.53m for 2017/18)
• Cease Income Tax Holidays, Income Tax Credits and Import Duty exemptions. This will not generate any income in 2017/18.
• Increase Non-tax fees and charges for Government Services; ($3.1m for 2017/18)
• Remove certain income tax exemptions so that all eligible tax payers do contribute to the development of Samoa ($2.0m for 2017/18);
• Impose an equalization charge on EPC;($2.0m)
• Impose a Telecommunications Levy on the call charges incurred by users; ($479,167)
ix. Raise excise on tobacco, alcoholic and sweetened beverages and petroleum fuels ($2.5m)
In line with the Budget theme, the Government is supporting the Revenue Review Recommendations in current taxation arrangements designed to ease the income tax burden on lower paid employees as well as lowering export taxes, duty and excise taxes to support exporting industries.
The assistance package will see the marginal tax rates adjusted by raising the tax free threshold from the current level of $12,000 to $15,000. This would see an extra 1,852 employees no longer required to pay income tax, saving them up to $300 pa each. It would also mean an estimated 14,199 workers in formal employment would not be required to pay income tax. Salary levels between $15,001 and $25,000 will be taxed at 20% and over $25,000 at 27%.
Moreover, to support the drive to expand exports, businesses that export goods and services, (excluding re-exports), get a tax deduction equal to 50% of the profits made on those exports. This effectively halves the tax otherwise payable on those profits. The deduction would only be permitted where the CEO MfR is satisfied that the export sale proceeds will be remitted back to Samoa.
Mr. Speaker, It is the Government’s belief that the two offsetting measures will trigger increased economic activity which in turn raise commercial activity and eventually raise tax collection.
The additional revenue expected as a result of the Revenue Review to assist with funding the 2017/18 budget is $14.1 million tala.
VI. EXPENDITURE PRIORITIES
Mr. Speaker and Honourable Members,
The Total Expenditures for 2017/18 is expected to be $934,244,759 which is 4.4% higher than the current financial year.
This increase in expenditure results from continuing efforts by Government to develop key priority areas which I will now highlight:
The total budget allocation for Education is approximately $100.3million and is equivalent to 19.6% of total Government expenditure programs for the financial year 2017/18. This is allocated as follows:
• $80.7million is allocated to the Ministry of Education, Sports and Culture which includes financing for key items that include:
• financing to continue towards the School Fee Grant Scheme for Primary Schools and Secondary School classes Years 9 to Year 11;
• re-instatement of School Review Officers;
• appropriations for teacher upgrade scholarships;
•$12.6million allocated for the National University of Samoa;
• $5.3million for the Samoa Qualifications Authority;
• $1.7million for the operations of the Samoa Sports Facility Authority;
Additionally, there are also development projects for the sector funded by development partners amounting to $2.4million.
$88.5million has been allocated to the Health Sector which represents approximately 17.3% of the total expenditure programs of Government and is allocated as follows:
• $69.3million has been allocated to the National Health Services which include the following:
• $6million for the Overseas Medical Treatment Scheme; 10
• $4million allocated for the procurement of pharmaceutical drugs;
• $3.9million for the procurement of pathology lab re-agents and consumables;
• $1.6million for catering services for the hospital;
• $1.5million for procurement of medical consumables required
for the hospital.
• $12.2million for the Ministry of Health which includes $3.3million for
the orientation program of new nursing and doctor graduates as well as