Persistence of Vision

September 16, 2016 11:45 am | Posted in Opinions | Share now Twitter Facebook

Glen Craig writes that our challenge now is make the plan, and work the plan

The past five years has seen a tough old time for Vanuatu, the causes both man-made and natural.

Unfortunately, the leading cause of the tough times has been inflicted by political turmoil that comes from a barrage of changes of government.

Incredibly poor borrowing decisions were made that saddled the country with long-term debt without any thought given to how we will pay it back. We have seen inflated contracts for infrastructure investments, poor use of grants to build facilities that in hindsight were a low priority such as the Vanuatu Convention Centre and we now have to bear the burden as taxpayers.

The slow implementation of some projects has seen a disgraceful amount of funds used for consultants and a loss of value through currency losses means we have not received bang for our buck. An example of this is the current DFAT/ADB urban rehabilitation project that was meant to give us 25km of rehabilitated roads. Now we are settling for less than half of that for the same amount of money.

Notwithstanding the past political turbulence, the country has achieved political stability in the current reigning Government which breeds a conducive environment for Vanuatu to develop a long term strategic plan. We have a very capable cabinet, an engaging opposition and a Prime Minister with widespread support of the country and the support of his Ministers.

What we need is genuine engagement with stakeholders— including the private sector—to develop a sound decision-making framework.

In business the classic mantra is create the plan and then work the plan or have a vision then work the vision. Of course the classic example of developing policy without a strategic vision is the recent controversial idea of introducing a personal income and corporate tax.

The Vanuatu Chamber of Commerce, Pacific Policy Institute and the Vanuatu Financial Centre Association have released publications in response making very valid and informed arguments against the introduction of this tax. It mirrors the ill reasoning that got Vanuatu in this debt crisis in the first place- short term thinking. An uninformed shortterm attempt to fill a revenue hole created by aforementioned poor decision making.

The feedback we have received from many people is that any attempt to introduce income or corporate tax will be disastrous for the country. It is agreed there needs to be an increase in revenue to pay for the past and the need to provide service delivery, but what is mooted currently will only drive away investment and deepen the hole.

Already government departments and state-owned institutions are planning to ‘normalise’ salaries with an increase in salaries (equivalent of tax) to be paid to ensure employees do not decrease their take home pay.

So the government wage bill will almost certainly creep up by an amount close to the tax collected and leave the burden to fall on an already over-taxed and under serviced private sector.

What is clear is that any implementation of any form of income or corporate tax in this already weak economy would be the death knell for dozens of businesses, leading to unemployment and a reduction of external investment in this country.

The estimated cost to implement an income tax regime is nearly 2 billion Vatu.

As an alternative what would happen if we gave VIPA 100 million vatu a year for actual investment attraction and an additional 200m vatu a year to the Vanuatu Tourism Office? Currently VIPA is nothing more than a compliance organization. This is not meant with any disrespect to the fine team there, they simply are not given the budget to do investment promotion of any real use. We get very little new investment in Vanuatu compared to our larger neighbors such as Fiji. Political instability, high costs of doing business and unwelcoming government departments have all but driven away any real new investment in this country. We do not exactly have a flood of investment coming into Vanuatu, yet we require that investment to drive economic growth and pay for the things the country needs.

If we could get an additional 40,000 tourists a year and 10/15 new businesses opening a year, the downstream revenue collection from increased VAT, VNPF contributions, increase in wages and Capex reinvestment would outweigh the little income/ corporate tax collected by a factor of seven within 10 years.

This government should consider putting together a special division of four or five of the smartest brains in the country and have them working full time on rapid project implementation, targeted investment attraction and removing barriers for investment and creating real sense of urgency towards an economic recovery.

The government has a real choice to make now, engage with all stakeholders including the private sector and business community to explore the fundamental basics that will make an actual long term difference to this economy or bulldoze ahead with backwards short term thinking initiatives such as an income/corporate tax.

Vanuatu needs a vision, we now need this government to step up and answer the call. If they do, in 10 years time we will look back on them as heroes.

Glen Craig is the Managing Partner of Pacific Advisory, a Vanuatu based advisory firm