MINISTER FOR TREASURY
PO Parliament House
m: +675 71111777
Posted by Charlie Tikaro
2019 Supplementary Budget – Painful First Steps out of O’Neill’s mismanagement
“Parliament has passed a Supplementary Budget that included cuts of K1,480 million. This is an extraordinary level of cuts having to be made so late in the year.
In the operating budget, the K400 million in cuts means 70% of all planned non-wage expenditure has been cancelled. Nearly K800 million has been slashed from our vital development budget, cuts that will make achieving our medium-term development goals that much harder.
The service improvement programs have also been cut by K286 million – so all of our Governors, open members and even our ward members will have less funds available to support their provinces, districts and wards. I know these cuts are painful.
The opposition is pretending there aren’t cuts, but they continue to show they know nothing of budgeting. So why have K1,480 million in cuts been made? Why will even more cuts be necessary in the 2020 Budget? The simple answer is “because of the eight years of economic mismanagement by O’Neill” stated the Treasurer, Mr Ling-Stuckey.
“Let me more specific. The 2019 Budget indicated expenditure would be K16,134 million. This was totally unrealistic based on O’Neill’s policies. Fake expenditure predictions. The biggest fake prediction was that the wages bill would be much lower than in 2018, even though everyone knew that there would be more teachers and nurses and a pay increase.
So the reality is that the actual wage bill is now conservatively estimated to be K854 million higher. This is only 2% higher than the 2018 outcome. There were some once-off payments in 2018, but the starting base for wages was totally unrealistic.
The second fake expenditure pressure results from the failure of proper cash flow management in 2018. Almost K600 million from 2018 was carried forward into 2019. So a fake 2018 budget outcome that put pressure on the 2019 budget.
The hidden 2018 budget overrun was being covered up by the build-up in arrears – money owed to PNG Power for utility payments and Nambawan super for rental payments and legitimate contract payments to the private sector.
Third, the blow-out in debt also meant that interest costs would be greater by K122 million. There were other underestimates in cost pressures. The MYEFO accepted K599 million of these cost over-runs, but reduced this figure to K249 million by assuming a cut in the development budget of K350 million.
In addition, the due diligence/IMF check indicated further cost-overruns of K1,275 million, once again in wage and interest cost over-runs and a hidden but planned massive increase in arrears payments of K821 million – a figure provided by the Treasury. So the total cost over-run from the 2019 Budget was K1,874.7 million. This is the figure shown below from the 2019 Appropriation Bills.
“My perspective is one of a business person. Essentially, I have come into a new business and found out that costs were underestimated by K1,874 million for 2019. Sales were not going well. So there is a need to cut expenditures.
The Supplementary Budget cut expenditures by K1,482 million. This late in the year, further cuts were just not possible. So the outcome was still a need to cover this difference by appropriating an extra K392.6 million (K1,874.7 million over-expenditure less cuts of K1,482.1 million).
The K1,482.1 million in cuts in the 2019 Supplementary Budget mean that the cost over-runs from O’Neill’s economic mismanagement have been reduced from K1,874.7 million down to K392.6 million – an improvement of 80% this late in the year.
“The 80% reduction in the cost over-runs of O’Neill in 2019 alone is a crucial early step in getting out of his economic hole. But further painful steps will be required, including further cuts in the 2020 budget. By accepting the economic realities, by accepting the painful cuts as a result of 8 years of O’Neill’s bullying economic mismanagement, we are taking the steps to take back PNG. We must start living within our means.
“With the Supplementary Budget approved, the next step is working with international partners to finance the remaining K3,504 million deficit in ways that actually support good, cheap debt. And there will be more time to focus on other activities to get growth going again, such as the recent license approval to get more cheap and reliable energy.
The Marape-Steven government is one of action, of fixing things, of living within our means, of taking back PNG. It is not about fake budgets and 100 day plans. I am proud of the contributions I can make to the new government. Better policies will keep coming to build our nation” stated the Treasurer, Mr Ian Ling-Stuckey.
Minister for Treasury
13 October 2019