2000

2000/2001 BUDGET

Mr Speaker,

The 2000/01 budget strategy continues the Government’s firm fiscal stance and prudent financial and economic management strategy, to ensure that macroeconomic stability is maintained.

I will now summarise the main aggregates of the 2000/01 budget.

Revenues $297,295,456

Ordinary revenue 232,204,066

External grants 65,091,390

Expenditures $337,695,672

The 2000/01 budget is projected to achieve an overall deficit of $40.4 million which is being financed from external borrowings of $37.9 million and domestic borrowing of $3.0 million. When translated in terms of accepted international practices concerning government finance statistics, the overall deficit is equivalent to 3.6% of GDP. This is consistent with the target set out in the 2000/01 Statement of Economic Strategy. The deficit is considered sustainable given that the increase in expenditures is for investment purposes rather than the financing of recurrent expenditure.

I might add here that the budget has always been dependent on external financing, given the limited resource base of government. This resource base has again been constrained further from revenues foregone of $36.0 million with the full implementation of the recent tariff reforms. However, it is anticipated that receipts will continue to improve as the economy responds to the reforms in place for an enabling environment to strengthen the private sector and encourage individual enterprise.

In time, it is anticipated that this dependency will drop off as major investment projects are completed, and the new revenue base has been substantially strengthened to finance both recurrent and development expenditures.

Because of the substantial increase in the capital budget, the Government has resorted to borrow from the domestic market so as to generate a cash surplus to meet any exigency requirement. Domestic borrowing however, has been limited to $3.0 million after careful consideration of the liquidity of the banking system, to ensure that the private sector is not crowded out, if there is a need to draw on these funds.

Total expenditures for 2000/01 represents a decrease of 1.8% when compared to the 1999/2000 budget. The drop in expenditure reflects the expected low levels of revenues and the tight financial stance government is taking. It also reflects a high investment budget with recurrent costs being held to sustainable levels, including some expenditure programs being reduced below 1999 levels. This follows the strategy of spending within our means. I do not intend to speak on the details of the budget, but I would like to highlight some of its key features. This includes support for the key sectors identified in the SES of education, health, agriculture, tourism and invigorating the village economy.

Consistent with the priority being placed on this sector in the 2000/01 Statement of Economic Strategy, the budget for health has been held to the same level as in 1999, when provisions for other agencies have been readjusted in line with available receipts. Between the health and education, 30.5% of total expenditure has been allocated to these two key sectors. Within the health budget, $0.7 million has been allocated to meet the cost of increases for salaries and wages of doctors and nurses. A provision of $1.5 million has again been allocated to meet the cost of medical treatment overseas of those medical cases that cannot be treated in the country. Government notes with concern the rapid increase of life style related illnesses that cannot be treated locally, and as a result of this rapid growth, the rising cost to the budget, which is approaching an unsustainable level. The Health Department will need to review its strategic focus to address these disturbing trends. This year will also see the start of a major infrastructural development project of around USD$5.0 million under the World Bank, with grant assistance being provided by our other development partners towards improving the policy framework and institutional processes by which health services are being provided so that all Samoans can have access to an improved and efficient health service.

Government believes that good health and a sound education are the key to improving the welfare of our people ultimately in the future. The budget for education therefore has been held at the same level as 1999, just as the Health budget, to ensure there are no disruptions to the provision of services while also meeting their obligations towards the implementation of major development initiatives. For the education sector, a major infrastructural development project of USD$5.0 million under ADB funding is proposed to start later this year. The aim of this project is to improve access and equity for the entire country. The program will run over 5 years with assistance also being provided by our major development partners to achieve the overall objective of this program, within a well defined policy framework and strengthened institutional capacity. Additional assistance to this sector include:

· $2.0 million to assist private mission schools. Government notes the continuing reliance of our people on private schooling, and knowing the difficulties faced by these schools to provide adequate service as well as ensure standards are being met, it is the intention of government to extend this assistance in the future, particularly to meeting essential needs of all of our people for a decent education;

· $150,000 to meet interest costs on village loans with the Development Bank, for school buildings constructed after the two cyclones. In this regard, only those village schools who have continued to service their loans and are not in arrears will continue to be eligible for such assistance;

Provision has been made in the budget to finance an agriculture show, following the success of a similar event two years ago, and to further provide an opportunity for farmers to showcase their products. The abundance in local food supply has also impacted very favourably on prices, with the recovery of taro in particular raising good prospects for our export market. Government is also looking at establishing a heat treatment plant and abattoir. These investments are aimed at further strengthening of its diversification strategy, which has focused on the development and marketing of fruit trees overseas, and also on the potential for exporting of meat as well in the future. These ventures are intended to expand livelihoods particularly in the rural areas, while also straddling opportunities for developing further private sector involvement in agro-business.

The performance of this sector continues to be a credible one. As such, the Visitors Bureau’s budget will need to target well priority areas for development in the coming financial year. The completion at the end of this year of the control tower and extension of the runway and aprons, will bring to an end a major investment undertaking over the last two years which also saw substantial improvement being made to the airport terminal and emergency equipment to bring Faleolo Airport up to international standards. The arrival at the end of this year of a new plane of the Boeing 737-800 series, and the procurement of another of the same series in September 2001, will strengthen considerably our strategic focus on tourist development. The financial investment in this sector has been considerable, however, we consider the returns to be substantial to the economy, and it is therefore critical that the Visitors Bureau continue to work with key stakeholders in this sector to ensure our strategies stay focused on an integrated approach to marketing and product development.

The Government has set high targets for Samoa Communications Ltd. Within a year, it is anticipated that most of the Samoans shall have access to a telephone. All unsatisfied demand for telephone services within the urban area of Apia will be met within the current year. An extensive network of public telephones will be set up throughout Apia and the villages of Samoa. A fibre optic network in urban Apia will provide modern telephone and data services, and the internet international gateway will be enhanced and shared more equitably. There will be a daily mail run on both islands, with improved security and reliability for the post.

Government will continue to focus in the medium term on ways and means to invigorate the village economy. To strengthen economic activity in the villages and rural community overall, provision has been made of $0.5 million to assist with the maintenance of plantation access roads. Under current policy, this has worked out fairly well with the responsibility taken by communities to maintain these roads for ongoing agricultural development. In review, this partnership has been working well towards promoting ownership while also maintaining an asset. A similar provision of $0.5 million has also been included to support the continuation of village competitions in agricultural production. The recovery of basic crops over the last two to three years, could be attributed to the support of various donors such as JICA, the European Union Microprojects and others, working in tandem with government’s support in this area, to motivate and strengthen agricultural production in the villages and rural communities. The government will continue to review its policies and target expenditure programs towards the improvement of the economic well being of its rural community.

A total of $11.29 million has been allocated to meet counterpart financing of the major capital development projects. These provisions are detailed as follows:

· $7.5 million for the Infrastructure Asset Management project, which is now in its final implementation stage. Total cost of this project is estimated at $58.2 million. This project comprises of improvement of the entire airport infrastructure encompassing the terminal, control tower, extension of the runway and aprons to allow for planes with bigger capacity such as 747s on long haul flights to land at Faleolo international airport, emergency equipment to ensure adequate safety standards, and institutional strengthening of the Airport Authority. It also involves the development of asset management systems to allow for proper maintenance of our roads, bridges, coastal walls and other physical infrastructure; development of safe transport systems and institutional strengthening of key departments such as the Public Works and Lands and Environment for regulation and policy development;

· $1.0 million towards the OPEC financed Petroleum Storage Tank Project. The total cost is around USD$5.0 million, and is intended to meet the cost of tanks in Apia and Asau to improve supply security as well as competitive fuel pricing;

· $1.5 million for the shortfall in financing of the Rural Water Supply Project, estimated to cost around $54.0 million tala under European Union grant assistance. This is aimed at improving access to good quality water in the villages;

· $0.2 million for the ADB financed loan of USD$5.0 million for the Education infrastructure development project;

· $0.1 million for the World Bank financed loan of USD$5.0 million for the Health infrastructure development project;

· $0.25 million for the AusAID financed Institutional Strengthening Project of the Education sector;

· $0.15 million for the NZODA financed Institutional Strengthening Project of the Justice department;

· $0.085 million for additional assistance to support the AusAID financed Institutional Strengthening Project of the Customs Department;

· $0.25 million for the Institutional Strengthening Project of the Treasury Department;

· $0.3 million for the Institutional Strengthening Project of the Public Service Commission.

Consistent with the theme of this budget, a number of ongoing and new initiatives have also been included as follows:

1. $1.9 million has been budgeted to meet the cost of a 5% general wage increase which will be effective from 1 January 2001. This is to address relativity issues resulting from the recent review of critical shortages in the education and health sectors, and the extensive job evaluation exercise and restructuring of departments the Commission has been undertaking since 1996;

2. $1.0 million is earmarked to meet the cost of the increase in pension from the current $80 per month to $100 per month effective from 1 January 2001;

3. $0.2 million will go towards the adjustment cost of the Parliamentary Pension scheme;

4. $0.1 million is earmarked for the construction of sports fields to aid the development of sports;

5. $30,000 is to assist the civil society with their operational budgets. The eligibility criteria is currently being finalised and will be announced soon to guide the application of these funds;

In the absence of a process by which Samoan laws are reviewed, the Government has set aside $250,000 to meet the establishment costs of a Law Reform Commission. The Commission is expected to thoroughly review the areas of law that require urgent need in order that they reflect the conditions and aspirations of Samoan society.

The budget forward estimates will be introduced in the 2000/01 period. This framework is intended to improve budget and planning for all departments and agencies as well as enhancing the transparency and accountability element in the way public finance is managed. This is an important budget tool to ensure more efficient allocation of resources.

On the revenue side, there will be no major increase in the rates of tax, duty and government charges in 2000/01. However efforts will be directed at refining procedures and processes to allow for improved enforcement and compliance. Penalties for non-compliance will be closely monitored to ensure that evasion is completely eliminated. This is an area where Treasury, Customs and Inland Revenue Departments will be working closely together to further improve collection.

Implementation of the budget tool of revenue retention will be seriously encouraged during the period. This is intended to provide incentives for the selected departments under this pilot initiative, to improve their collection by allowing them to retain a certain percentage of receipts in excess of revenue targets for priority expenditures, in the outputs generating these excess receipts.

Revenues $297,295,456

Expenditures $337,695,672

Revenue Retention