The road ahead | A challenging, but interesting future for Fiji

“This Congress comes at an important time. We have just concluded the broadest possible consultation across our country on our new National Development Plan. But this is only one part of the economic consultation process we have initiated since we came into Government in 2022 and which incorporates the Fiscal Review Committee and the National Economic Summit. Events like this Congress are also opportunities for important exchanges on economic policy which will help us, in the spirit of this Congress, to advance towards the future”. “I want to talk briefly to the Congress theme — “Advancing Towards the Future”. Where to From Now: Then I want to talk about Government economic policy in the short term, including future Budget measures. I know that on this I have a captive audience! But I also value the insights and feedback that we in Government can obtain from important economic forums like this as we work towards the next Budget”.

Fundamentals first – freedom, consultation and co-operation

“First and foremost, we begin with a critical fundamental issue. We must formulate policy in a free, democratic and consultative space. Without the freedom to openly and fearlessly debate economic policy, we cannot progress. Whatever some of you may think about our government’s performance so far, I think you would agree that on this fundamental point we have changed the environment completely. The well-known US organisation Freedom House has just named Fiji as the world’s most improved country in 2023 in terms of political rights and civil liberties. This is a reminder to us of how things used to be and how far we have come in a short space of time. These improvements must continue”. “We may not agree on everything – or perhaps anything! — but that is all right. Economic policy should be contestable. Debating and discussing it is the first step towards a more unified approach to solving our long-term economic challenges”.

No short-term solutions

“I am not here, as Finance Minister, to take economic measures that look good today. I am here to begin the process of addressing those long-term economic challenges. These include returning Government to a sustainable debt position so that it can more effectively deliver public services. They include ensuring that we have good public infrastructure such as roads, power, water supply, hospitals and schools. We must re-orient the economy so that we depend on more than tourism and remittances. We need high value-adding agriculture, services and fully developed creative industries. We need an education system that is relevant to a 21st century economy. We must deal with critical health issues such as NCDs and domestic violence, because we have a poor record on both. The scourge of drugs has recently received much public attention”. “And as we tackle these 20th century challenges those of the 21st century confront us. Climate change is not theoretical. It affects our infrastructure, as everyone from Suva knows who was without water last month. Climate events will damage our productivity and drive up insurance premiums. We must, like the rest of the world, try to understand and harness the benefits of artificial intelligence while understanding and mitigating its disruptive threat. These are not issues we will resolve in one or two years. These are inter-generational — and the challenges will keep coming. So as politicians we must confront them together. We know the old saying that politicians think about the next election, while statesmen think about the next generation. So we will always compete for power – that is politics. But between elections we must agree on common goals and directions so that the people are confident that, on the big issues, we will be consistent and our policies will be predictable”.

Inclusive approach

“When we say we have an inclusive approach to our governance — we mean exactly what we say. Last year, to signal our commitment to consultation and joint problem- solving, we held the first National Economic Summit — the first in 15 years. This gave us a golden opportunity listen to you as well as to share our own broad thinking on economic and social policy. The Summit has helped to set the direction of the Government. We may not yet be using the Summit efficiently as a planning mechanism, so we are asking you to give us a little time to make this work. We will expand opportunities for co-creation through other forums such as the re-convened Tripartite Forum, the BLV — the Council of Chiefs”. “Given the range of challenges before us we need a more coherent long-term plan that takes forward our vision of a united and a prosperous Fiji. We are putting a lot of time and effort into our new 3 year, 5 year and 20 year National Development Plan. Our aim is to ensure that we have an economic and social plan that our people have shaped and that they own. In our 3 and 5 year plans- we propose ‘getting our basics right’ — steady water supply, improved roads, adequate health care, and improved education. You may have other priorities. We are listening”. To give sufficient time for national consultations, we will be scheduling the 2024 National Economic Summit in the second half of the year. The National Economic Summit is the forum to discuss and shape our long-term economic plans — we do not see it as a Forum to discuss economic measures for the coming year. We have a separate Budget consultation process for that”.

Our current situation

“2023 continued to see strong economic growth, of well over 8% of GDP. This enabled us to shake off the disastrous effects of the Covid years. It has returned our economy to the size it was in 2019, about a year earlier than was projected. But that still means five years of lost economic growth”. “I thank all those who work in our tourism industry, in our national airline Fiji Airways and in all those industries who supported them, for their efforts especially. They made the most of the opportunities offered by post-pandemic travel demand and gave us a platform from which we continue to build. We see strong interest in investment in new hotels and other tourism related services”. Economic growth for the 2024 year is currently projected at slightly above 3% Either way, this level of economic growth is not enough. We must do better. I look to you to help us with bolder proposals to get us onto a sustainable pathway of 5 per cent annual growth through to 2030. That is where we need to be. Our new national development strategy is where we intend to bring many contributed ideas together to get us onto this pathway – a pathway that is sustainable and that delivers improved quality of life for all our people, not just some of them. We need as a country to understand the daunting economic challenges we face. While I don’t want to dwell on the past, understanding the past is critical to mapping our future.

Where did we go wrong

For too long, past Governments ignored the basic reality that an effective government must be realistically funded. For a decade, though more particularly from about 2015 and 2016, Government failed to collect the revenue we needed to ensure sound, sustainable development and necessary maintenance and improvements in our infrastructure. To balance the books, we basically stopped spending on maintenance and sound infrastructure investment. Our roads, our schools, our hospitals, our water system and other critical national assets tell this story. They tell a story of neglect first. That neglect is infinitely compounded by climate change. We borrowed excessively. We spent money in ways that made little sense. The upgraded Queen Elizabeth Drive — a five kilometre, single lane stretch of road which is not even a main highway — has cost us a whopping $60 million. The previous Government was reckless on its student loans. It just threw money at everyone and everything and pretended that this was investing in education. The Coalition Government has been criticised for writing off the $600 million TELS loan portfolio. In reality, TELS had already written itself off. It was recovering only $5million per year in principal and interest — I remind you — on an outlay of more than $600 million.

Good governance in deed and in policy

When we formed Government in December 2022, one of our highest priority tasks was to stabilise Government finances. Sovereign debt had hit almost 90% of our GDP in 2022 — crushing the fiscal space needed to drive our development. In our first Budget, we took painful but necessary steps. The journey towards sustainable debt levels will be long but we have clearly defined the trajectory in that Budget. Clarity about trajectory and discipline matters because we need to ensure a stable and certain policy and business decision-making environment. All of you know this only too well.
By returning VAT from 9% to its 15% level, we stabilised government revenues. We increased corporate taxes. I know that for your companies this was hard – but we know that this too had to be done. The feedback from the business community on this has been mostly understanding and I appreciate this. At the same time, we as a government must reciprocate – we must make the business environment easier and more certain. I recognise that we are still some way from making the business environment easier. On the certainty of policy front, however, I hope to be more helpful today. We are tackling the fiscal deficit. We will get the debt to GDP ratio below 80% before the end of the year. After that it gets harder. We have a long way to go to bring the ratio back to the 50-60% range which is where it needs to be at a minimum. 2030 is our target.

Overcoming our human resource constraints

I want to share my thoughts on the loss of our skilled people. Economies such as Australia and New Zealand have for a long time now opened up their borders to import skills because of their own shortages. Many attribute the success of these countries to their ability to do so flexibly and responsibly. As needs changed, they adapted their strategies. Only last week, for example, New Zealand announced a rapid pathway to residency for teachers. We have been losing accountants, engineers, doctors for a long time. You all know that only too well. You know better than me that we are now losing unskilled hotel workers, bus and truck drivers and workers across so many other skill sets. The Government itself is losing people. In my own Ministry nearly a quarter of our professional staff have left for overseas or for the private sector. This is happening right across the Government. It will always be hard for Fiji employers to match the attractive salaries and benefits that developed economies offer. That is without doubt. But what should we do? Under-investment in technical and vocational training (or TVET) has not helped. Almost $30 million dollars went down the drain in setting up poorly planned technical colleges. We are reversing this. We are investing significantly in re-building our skill base. By funding new entities such as Pacific Polytech, we are already producing quick wins – but we still have a long way to go. You have said to me often –skills are a most critical short-term challenge for our economy. We are responding with purpose.

Overcoming skills shortage

We must change the way we think about our economy. Like our neighbors – Australia and New Zealand, we must now learn to rely on importing skills to meet our skill shortages — your skill shortages. The Ministry of Home Affairs and Immigration is working to improve this situation. We have made money available for more than 20 new staff to meet the demand. The Ministry is reducing processing time for work permits and delivering new process improvements. The Minister for Home Affairs announced new streamlining measures in Parliament to come into force next month. The aim is to clear out the existing backlog of work permit applications and move future applications more quickly. In the medium term, we need to consider and develop a skills- based immigration system that allows us to import scare skills selectively – but systematically. Building consistency and transparency – and what’s coming in the BudgetThe Government cannot claim the credit for every aspect of national economic growth. The credit for this goes to our workers, our investors, our farmers, our risk-takers, our small enterprise owners, you and all who produce the goods and services the economy needs. But one area in which Government can play a critical role is in economic policy. We want to ensure that the Government is able to give to businesses and to our people — stability. A stable economic policy environment is crucial to broader social and economic stability. We do this in two ways — first by listening to you – our stakeholders and responding where we can — and secondly by showing that our economic policies are consistent. We want to give businesses the confidence that they need. Our tax environment will be consistent — not ad hoc. We will make changes when needed through consultation. We will not just announce them on Budget Day and just ram them through Parliament. The National Budget will be announced in June. I have consistently said, the policies in the National Budget will not be a surprise. They will come through consultations with you and all our stakeholders. I have said before that we have set the trajectory last year. That budget was tough for you – we know that. However, as I said last year, our aim is to ensure that our fiscal policies are clearly articulated and consistent and do not change from Budget to Budget.

Tax measures

Last year we signaled a future tax on dividends and other distributions. The Government is leaning towards a distribution tax — on both dividends and head office remittances – at a relatively low level — possibly in the range of 5 percent. We are talking to businesses about the merits of this measure and how such a tax could be most effectively be implemented. We are also looking at an increase in departure tax in 2025. The current recommendations we are considering are to take it from $140 to $170 from 1 April 2025 — however, on the basis that the increment will go towards funding necessary tourism infrastructure, particularly in rural areas where we can harness SME participation and create new tourism experiences. We are still working on this. We know that there was a negative response to the 3 per cent import duty imposed on manufacturers. We are looking closely at the arguments to take this back to zero. We will keep you informed on this. We are not planning any changes in rates of personal, corporate or consumption tax. So — relax! Some people may criticise us for being too open about our policies. After all, if we suggest a distribution tax, will there be a rush of distributions before Budget day? Quite possibly. If we say that we are looking at the 3 per cent import duty, will people slow down their importing for two months? Possibly. But I would prefer that we signaled to the business and investing community our intention to be open and transparent, even at the sacrifice of a few tax dollars here or there.

Improving taxpayer online system

Other measures that we are looking at include critical improvements to the FRCS Taxpayer Online System, TPOS. We have heard time and again from business and business advisers on their frustrations with this. And so I say — we hear you. We will fund the necessary work to fix it. We understand the need for business to be able to pay their taxes easily and flexibly. That is the least we can do if we ask you to pay taxes. We will also be working on other possible improvements in tax compliance. It seems clear to me that the earlier FRCS staff cutbacks were too much and we need to get more experienced people back into FRCS. Good compliance levels the playing field for honest and ethical businesses. We know that most taxpayers wish to be compliant and law-abiding. So we want to target those who seek an unfair advantage against their competitors through tax avoidance and evasion. We are making good progress on getting Fiji off the European Union tax blacklist. This is a situation that should never have arisen and we have taken too long to address it. I want to ensure that priority is given to this. Finally, we are looking at measures to improve Government’s delivery of infrastructure and services by partnering with civil society and the private sector. We recognise that Government struggles to deliver things whether it is maintenance and repairs, new buildings for schools and hospitals or innovate and flexible human services. This is partly because of our own lack of personnel and skills, but it is also because of a number of financial and procurement procedures that are inflexible and outdated. While we work on these we want to partner with those outside Government to deliver better infrastructure and services. This might come through cost-sharing or grant assistance schemes – we are at early stage of considering this. We would welcome your thoughts on how we might make this an effective strategy.

Tackling the cost of living challenge

I now turn to an issue which is most in the minds of all of our people — the cost of living. The past year has been challenging. Returning VAT from 9 per cent to 15 per cent on many household items has allowed us to earn additional revenue but it has also affected prices in the economy. We are paying the price for many years of poor fiscal management. When we do not fund the Government properly, it is the poorest people who suffer the most. When health, education and welfare systems are weakened by neglect, it is the poor who pay the greatest price. When road, water and the infrastructure are degraded by neglect — it is the poorest families who pay the greatest price. We must restore these to acceptable levels. We have to find the resources to restore and rebuild our social and physical infrastructure. Our water situation is improving. The Water Authority of Fiji is now assured of longer-term funding. We have begun to fundamentally transform our health system. We must get these basics right. This is our pact with our people. For an island state that is highly import dependent, managing the cost of living is a complex challenge. For years the Government tried to control rents and prices. We now see that this has adverse consequences in other ways. Fiji is now facing acute shortages of affordable housing for rent as a result. Who suffers the most from this? Bus fares were held down for years for political reasons. Many operators were forced to withdraw bus services on so many routes as a result. Who suffers the most from this? These may sound like academic discussions to those who face constant pressure on their household budgets daily. It makes no sense whatsoever for the country’s finance minister to tell our families that Russia’s war on Ukraine is why bread is more expensive. It is even more senseless to tell hurting mothers that kerosene is more expensive because of a raging conflict in Gaza and in Mid-East. The surest way for the Government to respond to the cost of living is to raise incomes. As we improve productivity, incomes will grow. We seek your partnership in taking our productivity to the next level — from farmers using FDB resources to improve productivity on their vegetable and yaqona farms; to manufactures applying new technology to reduce costs. The government will work with you to lift our productivity. We have initiated a review of minimum wages. We will work with our tripartite stakeholders to adjust and lift minimum wages. We are constantly seeking new markets to source goods more cheaply — In Indonesia, in China and India and across Asia. The Government is focused. All the tools at our disposal are being deployed to ensure that our economy is one where services and goods are delivered fairly and as cheaply as possible. We are making progress. I am focused on this. My ministry is focused on this. The Government as a whole is focused on this. Coming to grips with the cost of living increases is among the highest priority of the Government. This is a core part of the “getting the basics right” framework.

Where to now? Delivering on our pact My response to this question of “where to now” is four-fold:

First “where to now” is about getting our direction and vision right. We will work to shape that in through our new national development strategy.
Second, “where to now” is about how we will get there as much as it is about where we will get to. We will get there together with you — as partners, stakeholders and all our citizens. We will be consistent. We will be transparent.
Third, we will strive to get the basics right — that’s our pact with you.
Finally, we will stay the course. We want to ensure certainty and consistency of policy so that you can, in turn, plan your affairs with certainty and consistency.

PROF BIMAN PRASAD, the leader of the National Federation Party, is a DPM and Minister for Finance, Strategic Planning, National Development and Statistics.