Winners and losers in PNG budget
Updated
Two guests join us to help us analyse Papua New Guinea's 2010 national budget - David Caradus is a tax partner from PriceWaterhouseCoopers, and our regular finance commentator and CEO of Kina Securities, Syd Yates.
But first, Mr Yates reviews the flying visit of the Global Chief Executive for Exxon Mobil with the Prime Minister.
Presenter: Geraldine Coutts
Speaker: David Caradus, tax partner from PriceWaterhouseCoopers; Syd Yates, CEO of Kina Securities
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YATES: It was pretty quiet, I mean it wasn't publicised very much. It did just come in, I think it's part of the process of what's going to happen on December the 8th. So just come in to have a chat with the Prime Minister, say what they're expecting and if there's any last minute problems to be resolved I suppose that's what the topic of the conversation was.
COUTTS: Now David Caradus what's going to happen on December the 8th, the announcement of how the revenue sharing will go. The PNG government seems to have changed its mind a couple of times about the approach they'll take to that. Would that be much of a concern to Mobil and the LNG project?
CARADUS: I don't think so, I think they're working through the issues with the state and the state is very committed to fixing the last minute issues in the umbrella sharing arrangements. From what I understand it's on track for that final investment decision on the 8th of December.
COUTTS: And do you agree with that Syd? Do you think that it is on track and they're now in agreement?
YATES: Look the umbrella sharing agreements, I think they've still got a couple to start from what I understand and they expect to do that today I believe, they're flying up there, they're waiting for a couple of ministers who've probably got tied up with the budget. But let's hope, they're all saying that they're going to finish it by that time, so let's hope.
COUTTS: Ok well let's get down to the budget now and David details of the budget, a balanced budget, do you think it is a balanced budget and what about the revenue numbers?
CARADUS: Well I think it certainly is presented as a balanced budget, the revenue numbers certainly at least in the mining and petroleum sector are based on what now appears to be reasonably conservative estimates of the price of gold and oil. There's obviously a big increase in the collections from personal income tax, which historically has represented a large portion of the tax collections here, and that increase I think is dependent upon the LNG project progressing and starting up in 2010.
COUTTS: So if it proceeds, the LNG there'll be no tax changes?
CARADUS: Well there are no tax changes in this budget, and so yes, we're not expecting any. I think this is sort of a, can be seen as a pre-LNG project budget.
COUTTS: Syd Yates do you think that the PNG government is putting all its eggs in one basket, are there missed opportunities for further expenditures in key infrastructure, such as health and education, they've been distracted too much by the LNG revenues?
YATES: Geraldine over the last 10 years I think key health indicators have shown there's been little or no improvement in the health status. I think we've got a bit less than 50 per cent of students going to school. So I think they could spend more. They need to spend more. But in reality I don't think there's really a lot of money available, especially with a balanced budget, so as David said it's probably, they're waiting for the LNG I think and hopefully they need to spend more money on infrastructure, especially in those two key areas.
COUTTS: And is that your viewpoint as well David?
CARADUS: Yes it is but I think also that we've reached a point where we are dependent upon the LNG project going ahead, and therefore at least in the short term some of the government spending needs to be directed at the services that the LNG project and its contractors will need. So such as the departments of immigration and labour and internal revenue commission, customs and immigration to ensure people can get in and out of the country smoothly, because obviously the demands for services will increase significantly.
COUTTS: And we've touched on a little bit but it appears to be a revenue gap or maybe a revenue gap from now until 2013 until the LNG comes online David? How is the government going to cope?
CARADUS: They're going to be relying I think on the LNG project contractors and their employees as well as commodity prices maintaining a higher level.
COUTTS: But that's an interesting point isn't it because the LNG Exxon Mobil say that they're going to need a workforce of 12 to 15-thousand people, Australia's job low at the moment, are they going to be able to employ enough people to actually get this off the ground, and if they can't employ locally, if they can't that is going to impact on this project, and therefore the revenue that they're expecting?
CARADUS: Yeah well I think they'll be employing a significant portion of their force from outside the country.
COUTTS: But where from, like if Australia's got a job shortage at the moment where will they get this job force from?
CARADUS: Well I think a lot of the workers are not highly skilled so they come from other countries such as the Philippines, India and other jurisdictions, so Australia's not their only source of labour supply.
COUTTS: And Syd just sort of that a little bit now, commodity price volatility, although the budget assumptions are conservative, they could cause big problems?
YATES: Yeah they could, one good thing at the moment we've got gold running at about one-thousand-140 and it's a record high. In their budget they're looking at around 860 next year, so there is already a bit of a head start there, and traditionally they are very conservative. But it is quite a concern that if commodity prices go like they did last year it will cause problems with the budget.
COUTTS: Winners and losers, I'll put the question to both of you, the budget was supposed to be transforming the rural economy, I don't know how much, we haven't said anything about the rural economy now. But the winners and losers, firstly to you David?
CARADUS: Well the main loser obviously was the tax partner and accounting firm that relies on complex tax changes for their revenues.
COUTTS: Naming anyone in particular?
CARADUS: No, no, well actually there's no shortage of work here because of the LNG project, and I think health and education remain losers because it's apparent in the lack of education and health.
COUTTS: Ok Syd Yates briefly you're winners and losers?
YATES: I think I'll just go straight to the losers, the biggest loser is mostly everyone because of the high inflation figure. It's nine-point-five per cent and especially those people that are sort of only on fixed income, so they're going to be particularly affected.
