BY BARNEY ORERE
The subject of personal income tax that does not fairly compensate workers in Papua New Guinea has been around for a long time but it continues to fall on deaf years.
About a year ago, a UK tax expert who visited the University of Papua New Guinea raised the issue of the high income tax regime in PNG. No one really took the academic’s views into account.
There was no reaction from the government.
Now we are whispering on the same subject. Hopefully a follow up will come if there is a real seriousness involved.
Huge tax burdens and increasing public order problems are the challenges facing the government.
Economic hardship on an unprecedented scale, corruption and unemployment are on the rise.
Fifteen years ago, the Governor General, the late Sir Silas Atopare, at the opening of the Seventh Parliament, said PNG faced many social, political and economic challenges. We have suffered from a prolonged and unmanageable level of inflation, he said.
It has distorted our economic decisions, penalized growth and disadvantaged already struggling families,” said Sir Silas.
Unemployment and for employees, the refusal of a “fair return” for them through taxation “has penalized success and prevented us from maintaining full productivity.
But as heavy as our tax burden was, it had not kept pace with public spending.
For years we have accumulated deficit after deficit, mortgaging our future and that of our children for the temporary convenience of the few,” said Sir Silas.
When assessed, the mismanagement of the country is borne by the taxpayer.
The mismanagement of the country means that the people cannot prosper; the tax burden kills them and it is an unfair system.
The more economic problems we encounter, the more the tax burden increases accordingly, hoping that it will bring the solution.
But the mismanagement continues, which means the taxation will continue; potentially in an ever-increasing upward spiral.
It makes no sense if there are no results for the better.
HER MAJESTY’S GOVERNMENT
The GG is the Queen’s representative.
We have it because the Queen is away in England; at the other end of the world.
She is the head of state.
This is what we intended by becoming a member of the British Commonwealth of Nations at independence and adopting the Westminster system of government.
This means that the government of Papua New Guinea is Her Majesty’s government and the people of PNG are the Queen’s loyal subjects under her watch. We need to understand this structure.
As heavy as our tax burden is, the GG has pointed out that it has not kept pace with public spending.
Public order problems have become endemic and social problems are on the increase, mainly related to poverty.
The high income tax system denies a fair return and penalizes success and prevents Papua New Guinea from achieving full productivity.
The people are the country’s number one resource. But they have been despised and they will not rise again.
There is no innovation; they are discouraged and will not use their God-given talents. It’s too expensive to live in a poor country. A lot of dreams have been shattered and there are fewer dreams out there.
The worker has less money in his pocket because the income tax takes it away from him.
The mismanaged economy in the same system means there are no jobs and the cost of living is too high.
This prevents the human person from realizing their full potential. In the final analysis, this country is poor because its people are.
WHY PEOPLE ARE POOR
There are two reasons why we should worry about poverty and the lack of jobs.
The first is what economists call “human capital,” meaning that any nation relies on its people to create development.
If the population is healthy and well educated, the country has the basis on which to build and create jobs and wealth.
If the population is sick and poorly educated, the chances of attracting investment and creating jobs are bad and the investments will go to other countries.
The second is that a poor and unemployed population still needs to eat and live under shelter and they must somehow find the means to do so.
If there are no jobs available, the only recourse is crime.
The Australian National University has estimated that almost 20% of the total population of cities in PNG depend in some way on crime or prostitution for a living.
The level of crime and other forms of lawlessness is now one of the main reasons why companies do not invest in PNG.
This applies to existing businesses as well as new businesses.
Almost daily we hear about how rich PNG is, how we have unlimited mineral resources or the potential to grow any sort of cash crop we want.
In recent years we have derived enormous wealth from oil and minerals.
Revenues from our primary products have been very strong and we have seen our timber resources harvested at record rates.
All of this produced income that should have translated into development.
Instead, the opposite happened.
Three times in the 1990s, PNG came close to bankruptcy.
Some of the causes are beyond our control, but we had to get to the edge of a very steep cliff before realizing we had to do something about it.
Slush funds have increased year by year and yet services to rural areas have deteriorated.
We never knew where all the money went. All we knew was that suddenly we had none.
A government is no different from the functioning of a family.
It receives money from taxes and other sources and establishes a budget for the year.
He will decide how much money he can borrow and how he can repay that money. When the government and the public service are functioning properly, they follow this budget.
To run a large organization, there must be experienced and honest people running it.
Appointments should be made based on what a person has done before and what they know about the job they will be doing.
Part of this job is to inform governments that what they are planning to do is illegal or will not be good for the country.
They should be able to give reasons and what will happen if the government or the minister insists on doing what they want.
At the end of the day, they have to do what the current government orders them to do, regardless of whether they think it’s right or wrong.
We haven’t followed this practice for many years now.
Appointments were made not on the basis of what the person knows but who they know.
Ministers almost always fire the head of their department when appointed. .
They replace them with people from their own party or people they owe favors to and the person doesn’t need to know anything about the job or have management experience.
The trend has been that these people have been appointed with increasingly higher salaries and working conditions, especially the presidents and managers of statutory institutions.
The person who has been made redundant will be paid, not like someone in the private sector for three weeks’ salary and other rights, but the full contract.
We have allowed the management of the government to get so bad that there has been no concern to ensure that the government or the statutory body gets the best deal for the people. We continually read about deals being done for a lot more than they should be.
Corruption is bad because it means our managers are not doing their job and we are not getting the best value for money.
Corruption leads to lazy and bad management.
These conditions cannot be corrected by raising taxes or making people pay.
Raising the standard of living of workers is a means of combating poverty.
Responsible wage adjustment is good for the national economy. In our capitalist style economy, supply and demand are the main driver.
An upward wage adjustment stimulates demand.
When there is money in workers’ pockets, they spend it on goods and services.
This will have the effect of generating economic and commercial growth.
A few years ago, the General Secretary of the PNG Trades Union Congress, John Paska, made these observations:
– Minimum wage earners spend almost all of their money onshore on local products, while those at the top end of the wage structure tend to spend a high proportion of their income on offshore products and services.
– Luxury goods are mainly imported. They command prices that are above the minimum wage, so it is those at the top of the wage bracket who buy these goods.
– In the determination of the minimum wage of 1992, the minimum wage was reduced from 120 K per fortnight to 45 K per fortnight.
The 2008 Minimum Wage Determination set the new rate at K2.28 per hour or K182.40 per fortnight. The current rate is 3.50K per hour.
The negative impact of not being judicious enough is clearly seen in the difference between the wage bill and the contribution of employees to the minimum wage.
Paska said wage economics, because of its intrinsic value to the economy, should be based on logic and economic sense.
The rationale for the reduction in the minimum wage in 1992 was that the reduction in real wages would create an impetus for employment as employers would have an incentive to hire more workers.
While it is true that employers would be willing to pay wages up to a certain point, it is equally true that workers would be willing to accept employment when offered wages up to a certain point.
Spending on luxury goods and services meant repatriating money overseas since most companies that engaged in such activities had their roots outside the country.
The value of the wage earner at the minimum wage was therefore very vital for the growth of the national economy, especially in rural areas where most wage earners were hesitant.
The idea that workers would somehow respond to robotic command at the flick of a finger by the employer was as archaic as the master/servant conundrum of serfdom and slavery. And yet it happened and not just once, but twice.
The first in determining the 1992 minimum wage and the second in determining the 2000 minimum wage.
The result turned out to be disastrous, Paska said. There was no bump in the employment period and that 10% has remained static to date.
This raises the question of why there was an insistence on following the same failed path. We had eight years between 1992 and 2000, enough time to analyze the data.
But we persisted with a failed prescription. The answer lies not in econometrics but rather in ideology.
- Next: What do we mean by management?