Fiji Government is targeting an overall net deficit of $639.1 million or -4.8% of GDP in the 2023-2024 Budget on the back of projected revenue of $3.7 billion and $4.3 billion in expenditure.
The net deficit is much lower than the last four consecutive years, and almost half of the average deficit, consequently, the debt-to-GDP ratio is projected to fall to 79.3 percent from 81.2 percent estimated for FY2022-2023.
Tax policies have been geared towards restoring revenues to pre-pandemic levels without introducing any new taxes but restricting existing ones.
In announcing the 2023-2024 National Budget Minister for Finance Professor Biman Prasad said it incorporates recommendations from stakeholders and aims to improve fiscal sustainability by reducing the fiscal deficit and lowering the debt-to-GDP ratio.
The increased expenditure is a combination of increased allocation in critical sectors including health, education, and infrastructure as well increased government payments.
The education sector continues to receive the largest funding allocation as it has in recent years. This includes covering the write-off of TELS debt, reinstating a $33.5 million grant to the University of the South Pacific, and setting aside an additional $20 million to settle outstanding dues to the institution.
The Ministry of Agriculture and Waterways also receives a significant increase in funding, going from $64.1 million to $95.2 million. There are also increased funds allocated to social protection programs, including the Family Assistance Scheme (previously known as the Poverty Benefit Scheme).
Improving infrastructure, particularly addressing water leakage that costs the government $23 million annually, is another priority. The Ministry of Health receives an increased budget for hiring new staff, such as nursing assistants, as well as allocating $11.6 million for upgrading nurses’ salaries and overtime. The Ministry of Itaukei Affairs sees an increased allocation for various purposes, including providing a $100 monthly allowance to community leaders such as the Turaga ni Yavusa, which is a first.
There are also significant expenditures attributed to higher government contributions to FNPF payments due to the reinstatement of pre-COVID contribution rates (18% effective from January 1, 2024), increased interest payments on external loans due to global interest rate hikes, and changes in VAT expenditure resulting from the VAT rate increase from 9% to 15%.
The projected revenue of $3.7 billion is derived from tax revenue at $3.1 billion and $593.1 million from non-tax revenue.
The projected tax revenue of $3.1 billion is an increase of $855.4 million (38%) when compared to the revised FY2022-2023 estimate. This comes on the back of revenue reforms introduced in the budget including increase in VAT rate, corporate tax, departure tax, and customs and excise duties.
Increase in VAT Rate: The VAT rate is being aligned from 9 percent to 15 percent, with zero-rated VAT maintained on 21 basic items and the addition of prescribed medicines to the zero-rated list. This change is expected to generate around $445.6 million in additional net VAT collections. However, the zero-rating on 22 essential items will result in an estimated revenue loss of around $237.6 million.
Increase in Corporate Tax Rate: The corporate tax rate is being raised from 20 percent to 25 percent, and for companies eligible for the lower tax rate under the SPX tax incentive, the rate will increase from 10 percent to 15 percent. This increase in corporate tax rate is projected to generate additional revenues of approximately $73.5 million.
Increase in Departure Tax: The departure tax is being raised from $100 to $125 starting from August 1, 2023, and to $140.00 from January 1, 2024. As visitor arrivals recover, these gradual increases in departure taxes are expected to generate an additional $30.8 million in revenue.
Increase in Excise Duties: Excise duties on alcohol and tobacco products are being increased by 5 percent, and a 5-cent per liter excise tax is being introduced on carbonated/sugar-sweetened beverages. These changes are projected to result in additional revenues of $7.6 million. Excise duties and taxes will also be levied on other products such as sweet biscuits, juice, ice cream, snacks, and sugar confectioneries.
Changes in Import Excise Duty and Fiscal Duty: The import excise duty for passenger motor vehicles will be increased by 5 percent, while the fiscal duty for certain food products will be reduced. This is expected to lead to a net revenue loss of around $2 million. Reductions in fiscal duty include items such as corned mutton, corned beef, beef, canned mackerel, duck, prawns, sheep/lamb meat, canned tomatoes, and chicken portions.
Reduction of Standard Rate Tax (SRT): The SRT will be reduced by 5 percent effective from January 1, 2024, and merged with the PAYE structure to simplify the tax system. This reduction in the marginal tax rate is estimated to result in a revenue loss of $2.1 million for a period of 12 months.
Increase in Water Resource Tax: The water resource tax rate will increase from 18 cents per liter to 19.5 cents per liter for every liter of water extracted exceeding 10,000,000 liters per month. This change is expected to generate additional net revenues of $2 million, accounting for income tax foregone from water bottling.
In addition to these specific measures, the government is also reviewing customs concessions and tax incentives to reduce costs, remove protectionism, and harmonize rates. This is projected to contribute around $36.6 million in customs collections by eliminating certain concessions and ceasing duty concessions on specific imports.
The government is expected to collect $593.1 million from non-tax revenues, an increase of $159.9 million or 36.9 percent compared to FY 2022-2023. This is expected to be derived from $216.8 million in cash grants and around $124.6 million in dividends from state-owned enterprises (SOE) and profits from the RBF in the financial year. The government is also expecting to receive $35 million in reimbursement and recoveries from various existing trust fund accounts.
The debate on the 2023-2024 Fiji National Budget is scheduled for Monday, July 10.