OTHER options to mitigate the cost of living should have been explored other than the 2.5 per cent reduction in Value Added Tax (VAT). This is the view of Westpac Fiji senior economist Shamal
Chand in the bank’s latest Westpac Wave, in which he provides a review of Government’s budget for the 2025-2026 financial year.
While conceding the importance of cost-of-living measures to protect vulnerable Fijians struggling in a high inflation environment, Mr Chand said targeted expenditure assistance should have been opted for instead of reducing VAT rate.
“The reduction in duties to support trade liberalisation is a commendable move.
“However, frequent changes to VAT rates can create inefficiencies, increase the risk of abuse and impose additional monitoring costs.
“Lowering the VAT rate will also increase the burden on households via increasing pressure to raise income taxes to offset the cuts to VAT while higher corporate taxes will act as a disinsentive to investment, a key driver of economic growth and rising productivity.”
Mr Chand said the budget also lacked clarity on whether the Government intended to maintain VAT at the current 12.5per cent, revert to 15per cent or streamline the list of zero-rated items under a uniform VAT structure.
“It is true the Government lacks robust outreach mechanisms and infrastructure to deliver targeted assistance, aside from pension schemes.
“Reducing VAT was the most convenient, but it is an ultimately inefficient policy choice.
“This change also disproportionately benefits higher-income households, reinforcing the case for more equitable, targeted support,” Mr Chand said.
Government is forecasting a $250million revenue loss from the VAT reduction.
In line with the Government’s expansionary budgetary stance, Westpac has revised its growth outlook for Fiji upwards to 2.9 per cent from an earlier estimate of 2.7 per cent.
Note: This article was first published on the print version of the Fiji Times dated July 7, 2025
