2018: Review Our Priorities, Refocus our Energies and Reinforce our Strengths

The 2018 National Budget — Review Our Priorities, Refocus our Energies and Reinforce our Strengths — is the first for the Deputy Prime Minister and Treasurer, the Honourable Charles Abel, and is the culmination of the process that we have seen over the past months since the election and the Alotau Accord II, the 100 Day Plan and the subsequent 25 Point Plan.

Key outcomes from the Budget include:

• Inflation — 6.9% (vs 5.9% in 2017)
• Economic growth — 2.4% (vs 2.2% in 2017)
• Government revenue as a percentage of GDP — 14.6% (vs 13.5% in 2017)
• Net borrowing as a percentage of GDP — 2.5% (unchanged from 2017).

Reflecting this process of prior public announcements and consultation, with echoes from the 2015 tax review, much of this Budget brings together welcome reform elements that reflect a more modern view of the way that government plans and operates as an effective spending and taxing body.

This strategy is underpinned by two principal themes:

• a significant increase in revenue — this reflects the Government’s strategy of increasing revenue from existing taxes — either through rate increases or more effective administration — rather than the imposition of new taxes
• a greater focus on public sector accountability for managing and spending public monies.

In not drastically seeking to curtail public spending, the Government is hoping to ensure that spending is targeted at productive sectors that will aid economic growth.

Naturally, not all stakeholders will welcome this Budget:

• the Government still appears to see major businesses as a soft target for enhanced revenue collection
• government agencies will come under pressure to remit surplus funds and better account for the execution of their budgets
• a focus on reducing government employee costs will challenge some in the public service.

The issue deferred in this Budget is that of reigning in government debt. With the Government running a Budget deficit of 2.5% of GDP, the debt-to-GDP ratio of 32.2% in 2018 means that debt servicing costs (the third largest expenditure item) is rising from 10.4% to 12.7% of all expenditure. This is a challenge that cannot be put off indefinitely.