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Budget Repair – Fixing Arrears

Post by Charlie Clyde Tikaro

“Budget repair is difficult. A very major challenge for the 2020 Budget is dealing with unpaid bills – also known as expenditure arrears. One extraordinary aspect of my 82 days as Treasurer is that almost every day I get a letter from a department or committee or business indicating there are even more arrears than uncovered by my initial Due Diligence exercise.

The extraordinary legacy of the O’Neill years continues to slowly reveal itself! Let me outline some of these arrear problems, and then how the Marape-Stevens’ government will address these legacy arrear problems.

“One major area of arrears is in the area of payments to our public servants. My advice is that the level of wage arrears could total K1,827 million. This was the figure derived by the Strategic Budget Committee (SBC), represented by Deputy Secretaries of the central coordinating agencies.

This is an extraordinary amount. This is a shameful legacy where the cash has not been provided to pay the legal entitlements of our loyal public servants, health workers and teachers.

“The majority of this estimate is based on funds not being available to cover the exit and superannuation payments of public servants and teachers who are over the age of 65 and were required by law to retire.

However, the lack of funds means that they continue to be paid, even though the law says they should be retired. They are paid even if they are not at work. This is such an unfair situation – teachers and public servants who have loyally served this country right up to age 65 should not be treated in such a way.

This is also a foolish decision from a financial point of view – making the exit payments means major salary savings for future years – a 30% rate of return for every year.

“In addition, the 3% pay increase that should have been made in 2019 by the previous government was not funded and this now stands as a legal liability costing K122 million.

“In addition, 13 agencies and national departments have collected personnel income tax from their employees, but have not paid this to the IRC! This amounts to K203.5 million. It is not legal for agencies to with-hold such payments, and appropriate action will be taken as part of clearing the arrears backlog.

“Health awards are another area where arrears have built up with an estimated K137.6 million in arrears. There are reports of K110 million in unpaid Police Service Allowance, and another K86 million in unpaid APEC allowances.

“On top of all of these already extraordinary figures, an estimate has not yet been made of the level of arrears owing to teachers under various awards such as unpaid leave fares.

“There are substantial arrears in other areas, such as unpaid bills to contractors. The value of these is not clear. One estimate is that arrears in the Department of Public Works totals at least K300 million still outstanding and most likely more.

There are frequent media reports of other arrears – such as unpaid bills from the unnecessary extravagance of APEC.

“A letter late in the week also went through arrears in critical goods supplies – such as unpaid bills for the oxygen supplied to our hospitals.

“What an extraordinary mess to be left with!” stated the Treasurer, Ian Ling-Stuckey.

“So what action needs to be taken to start climbing out of the deep economic hole dug in the O’Neill years? The 2020 Budget Strategy and the subsequent 2020 Budget will take a multi-pronged approach towards dealing with the backlog of arrears.

“The first element is to acknowledge that there is a problem. Indeed, the issue means that PNG’s deficits and actual public debt levels have been much larger than admitted by O’Neill.

“The second element is making funds available to start clearing the arrears. However, as indicated above, the level of arrears is so large that it cannot be financed in a single budget.

There are limited revenues and there is a limited ability to borrow funds in a sustainable way. A multi-year approach is required.

In the 2019 Supplementary Budget, we provided K521 million to deal with the repayment of arrears, with the initial focus on clearing government bills owed for power, water and rentals. Further funding will be revealed in the 2020 Budget Strategy for 2020 and 2021.

“Third, there is a need for a robust mechanism to verify arrears. Some will be straightforward, but others will require a verification and checking process. International assistance is being sought to ensure we will have a rigorous process put in place.

This is important to avoid paying dishonest, inflated and wantok claims at a time when cash is scarce. But we also need to ensure that those many legitimate claims, many with an aging period of between 1-5 years, are paid as soon as practical because many PNG businesses are struggling as a result.

We in Government need to be more sensitive to the private sector and simply pay our legitimate bills!

“Fourth, there is a need to finance the repayment of arrears. The repayment of arrears will place a very large strain on financing the budget. Previous government inaction and poor attitude to arrears are now catching up but the Marape-Stevens government will not brush these aside and treat as a minor problem but tackle head on in a transparent and coherent strategy .We are seeking additional friendly foreign support.

“Finally, for the sake of good budgeting and planning ahead, we need to clearly separate out underlying trends in the budget from once-off items such as repayment of specific arrears.

“Fixing the arrears problem is another clear difference from the O’Neill years. There was a partial attempt to deal with a small part of this problem, but it was clearly ineffective.

The real issues were swept under the carpet in fake budget figures. The new Marape-Stevens’ government does not run from difficult problems and try to hide them.

Rather, it is a government that is willing to be honest, to make the tough decisions, and to map out the course ahead to take back PNG” stated Treasurer Ling-Stuckey.

Hon.Ian Ling-Stuckey,CMG.MP
Minister for Treasury
18 November 2019

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