Is an economic response required?
Around the world, countries and regions are dealing with the implications of the COVID-19 global pandemic. The threat of the pandemic overwhelming public health systems has led to a range of measures targeted at flattening the curve to slow the rate of spread of infection and hence lower the overall potential threat to human life.
Nevertheless, the response measures involving the cancellation of activities involving large groups of people, travel restrictions and the potential lockdown of parts of society will inevitably create significant damage to the economy. PNG’s response of declaring a state of emergency, as well as the impacts of travel restrictions and the impact on global commodity markets will all adversely impact the economy over the short and medium term.
However, whether the economy will suffer in the long term and how quickly it bounces back when the pandemic’s conditions allow may be influenced by the fiscal and economic measures that PNG will put in place. Currently there are no specific announcements, however, other countries have shown the range of tax based options available to the government.
Regionally, the Australian response has been swift and focussed on:
tax relief through enhanced depreciation and an immediate write off of some investment items
cash flow assistance with grants to employers to subsidise wages - but delivered through offsets to monthly GST and SWT compliance costs
cash flow assistance through the deferral of tax payments
remittance of penalties.
A similar mix of deferral of payment deadlines and enhanced tax relief is also a feature of most European announcements. Some jurisdictions have chosen to provide special tax breaks for those involved directly in the fight against the pandemic, for example in China.
For PNG, given the recent focus on increasing tax collections, any response that defers collections or provides tax breaks will clearly require a significant policy pivot and will need the support of the multilateral agencies and organisations providing budget support. As yet, there is no information available from the Treasury on these measures, although we recognise that Treasury is no doubt considering various stimulus measures at the present time.
However, one measure that could be implemented immediately and that may have a significant positive impact for business would be to reinstate the historical policy of allowing taxpayers to offset their tax liabilities from GST refunds. This step would seem to go somewhat towards meeting the needs of business in terms of preserving cash flow, enhancing liquidity - and with the advantage that no policy change would be required.
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