Mr Speaker

 I move that the Appropriation Bill 2000/01 be now read a second time.

 As required under Standing Order 101, it is a great pleasure that I present, on behalf of the Government, the Statement on the Estimates for the 2000/01 fiscal year.

 Mr Speaker

 This is Samoa’s first budget as we enter the new century. It is appropriate therefore that it is framed with focus, confidence and conviction. It is also our Administration’s last budget during this Parliamentary term. It is important therefore that we take stock of what your Government has achieved during this 5-year period in office, including progress to date of its public sector reform program and economic strategies to achieve the realization of its economic vision for the country.

 As we look back five years ago, it is justified to say that Samoa has come a long way to where it is now. Despite the challenging events of the ‘90s, with the advent on the domestic front of two devastating cyclones and the taro blight, and on the external front, the adverse shocks of the Asian crisis and its domino effect on the global economy, I am pleased to inform honorable members that Samoa’s economic performance has continued to improve greatly, in addition to substantive progress being made on the achievement of its development agenda.

 

These positive achievements were set against the emerging challenges of the global economy characterised by the dynamic ongoing process of integration of markets as well as rapid technological advancements. It is critical that these global developments are taken on board in the design of our domestic policies because we need to allow our people and businesses to participate in the global economy. The Government believes the necessary policy framework has been established to ensure our economy gains from the benefits globalisation has to offer.

  

2.            Economic performance in the last five years

 The country’s economic performance in the early nineties was badly affected by the devastating effect of the two cyclones, and taro blight. As a consequence, all effort was concentrated on rehabilitating and reconstructing the economy, with the effect that economic activity declined somewhat during 1990-1992. After three years of economic stagnation, Samoa’s economy recovered strongly in 1993, growing at 5%. This growth was driven mainly by the strong recovery in agricultural output and reconstruction activities. The recovery was cut short in 1994 however, by the spread of the taro leaf blight.  Added to this as well was the cash flow problems experienced by Polynesian Airlines to meet its overseas leasing obligations and servicing costs of the two planes it had acquired at the time.  These events had negative impact on the export market for taro, as well as on the financial resources of the government as it set out to restructure the airline as well as implementing remedial action to counter the effects of the blight.  These  resulted in the contraction of the economy by 6%.

 

The demand on financial resources for the reconstruction of the economy led to the draw down by Government of its cash and foreign reserves resulting in a major drain of our external reserves. In its 1995/96 budget, the government implemented a number of fiscal and monetary policy initiatives to reverse this drain on external reserves. It also signaled the Government’s shift in focus in its economic strategies, towards strengthening the private sector as the engine for growth, and for the creation of employment opportunities for the fast growing labour force.

 This led to a major initiative being implemented in 1996, with the publication of the first Government Statement of Economic Strategy. The SES revolutionized government’s planning approach by moving away from long term 5-year development plans, towards a more strategic, focused and medium term planning framework. It also signaled another major step towards greater consultation on its economic vision and strategies, to strengthen ownership of these strategies while forging a partnership with the private sector and the wider community to promote development.

 Initiatives to support that strategy included a thorough review of tariffs and taxes for major adjustment under the proposed reform of the tariff system. This was to allow Samoa to move away from relying on income taxes and import duties which inhibit trade and business growth, to a more broad based tax such as the VAGST, which encourages trade, export, manufacturing, new businesses and domestic savings. That same year saw the introduction of the output/performance based budgeting system together with wide ranging public sector reforms aimed at promoting efficiency in the allocation of resources, while also developing a framework for monitoring the performance of the public service.

 

On the infrastructural side, Government was committed to providing the necessary infrastructure throughout the country in terms of improved roads to facilitate transportation, access by the rural community to electricity through its rural electrification program, improved access to potable water, as well as better communication facilities for improved communication within Samoa and abroad.

 

On the budget side, government stayed committed to maintaining fiscal restraint in support of its strategy to promote private sector development as well as securing a stable economy.

 

Mr Speaker,

 

The combined effect of these policies formed the basis for robust growth in 1995 and 1996 with real growth rates of 6.4% and 7.3% being achieved respectively.

 

These sound economic policies were continued in 1997.  Preparatory work for the removal of direct controls on credit ceilings and interest rates in support of private sector growth were completed in 1997, for implementation in January 1998. The review of the tax and tariff system also continued with the objective of introducing reforms that would further provide a more competitive environment for private sector growth. Investment policy was reviewed to ensure consistency and transparency in the consideration and approval of investment licences. This was seen as a critical step towards building investor confidence in the Samoan economy.

 

Unfortunately, the adverse shocks of the Asian financial crisis on the world economy and on our region in particular, neutralised the impact of our domestic policies, resulting in a real growth rate of 1%. This was below the rate we had forecast, but given the generally unfavourable global conditions, it was still considered to be a very credible result. In fact, very few economies in the Pacific region achieved positive growth during that period.

 

In 1998, government put in place a number of major policy initiatives it had been developing and refining since 1996 to support a more competitive and enabling environment for investment and business growth.

 

1.      First, the financial system was liberalised on January 1998. This resulted in the removal of controls on interest and credit ceilings, and allowed the Central Bank to use indirect monetary instruments to manage monetary policy.

 

2.      Secondly, tax and tariff reform measures took effect in May 1998. The key features of the reform package included:

 

(i)            major cuts to most tariff items;

 

(ii)          most excise taxes were abolished;

 

(iii)         Income Tax - further personal income tax cuts were granted. In addition, income tax holidays in the form of business incentives were   removed, allowing only those approvals in place at the time this new measure came into effect, to run to full term as applicable;

 

(iv)        Foreign exchange levy – the 1% foreign exchange levy was to be abolished with effect from 1 January 1999;

 

(v)          Value added goods and services tax (VAGST) – a threshold of $52,000 for small businesses was introduced, effectively exempting most small stores and other small businesses from the need to register for VAGST, and lodging VAGST returns.

 

(vi)        Beer, spirits and wine – following a review of excise on alcohol, the retail price of beer, liquor products and most bottled wine were reduced;

 

(vii)       The incentives were gradually phased out as the new lower tariff regime came into effect. This regime provides general incentives to all businesses in a more transparent manner;

 

3.      Thirdly, the Government continued with the implementation of its corporatisation and privatisation policy. This policy was aimed at instituting sound commercial practices in the management of all state-owned enterprises. It also had the dual effect of providing a platform to review services that are considered to be better placed with the private sector. During this period, Government wound up SPDC, and proceeded to divest some of its shares in those public companies it had invested in, including much of its shares in the Samoa Vailima Breweries, BOC Gases and Samoa Iron and Steel.  Another major development was the corporatisation of the Postal and Telecommunications department.

     

4.      Government undertook in the same year to review the efficiency as well as   effectiveness of its public service. This resulted in the public service reform program now underway.

 

Mr Speaker, Honorable Members,

 

The policy measures I have outlined, were indeed difficult decisions to make but your government was convinced it was the optimal choice for the Samoan economy to move forward, and to achieve improved quality of life for every Samoan citizen.

 

On the fiscal side, government maintained responsible, prudent and well targeted spending to the areas of need and priority in the community within the limits of the resources available. This responsible approach to financial management resulted in overall budget surpluses in fiscal years 1996/97 and 1997/98.

 

As a result of all these strengthened and new policy initiatives and strategies, economic growth rebounded in 1998 to register 3.4% in real terms.

 

In 1999, the Government continued to work together with the business sector and wider community to push ahead with the reforms that were introduced in 1998. The 1998/99 Statement of Economic Strategy set out clearly the government’s priorities for this period. These were to continue refinement of its revenue reforms, improve and strengthen budgetary procedures as well as strengthening the performance of state-owned enterprises. The major policies introduced included:

 

(i)            further significant cuts to import duty rates on business inputs, capital goods and building materials;

 

(ii)          implementation of the new personal income tax threshold which was raised to $10,000 from $8,000 resulting in more take-home pay for everyone.  This threshold had been revised earlier in 1994 following the implementation of the VAGST, when it was increased from $4,000 to $6,000 on 1 July 1995. With the implementation of the first phase of the tariff reform in May 1998, the threshold was again increased from $6,000 to $8,000 on 1 January 1999, and most recently from 1 January 2000 to what it is now, following the final adjustment to tariffs on 1 July 1999;

 

(iii)         Accelerated depreciation deductions were allowed for all business plant and equipment;

 

(iv)        The reduction of the company tax from 35% to 29% which took effect on 1 January 2000.

 

Mr Speaker, Honourable Members,

 

I am proud to announce the strong performance in 1999 of our economy with real GDP growth of 5.3%, well in excess of an earlier projection of 3% for the year.  This is a remarkable achievement given the numerous reforms and development commitments your Government has been engaged in, in the last 5 years.  This performance, I feel, is a vindication of the relevance and appropriateness of policies and strategies pursued by your Government, towards achieving a sustainable rate of growth for the economy.

 

I have appended the Economic Statement which highlights the performance and the achievements of our economy in 1999.  I invite and encourage Honourable Members to take advantage of this important document.

 

Mr Speaker, Honourable Members,

 

The overview of Samoa’s economic performance in the last five years, demonstrate quite clearly that sound economic and financial management are essential pre-requisites for sustainable growth. This provides a valuable lesson to all of us of the need to continue and improve on these management practices so that the Samoan economy can be insulated from external shocks. The government has done just that in the past 5 years. We have put in place far-reaching strategies that provide a solid foundation from which the Samoan economy can move forward. Indeed these were difficult and painful decisions and without the support of the wider community for these policies and strategies, the impact of these external shocks would have been catastrophic. We remain convinced that we have made the right choice looking at the positive impact of these decisions on growth through a revitalized economy today.

 

Mr Speaker Honorable members,

 

As we travel the first year of the new century, the government believes that our country has gone through difficult times and has made a lot of sacrifices along the way. In that context, it is all the more critical that we should not sit back and rest on our achievements so far, but to continue to push on until our economic vision for sustainable development and improved quality of life for all have been fully attained. In the next two years it is important that we review thoroughly the policy initiatives and reforms we have implemented, including an assessment of their overall impact on all sectors of the community. This will involve reviewing processes and procedures of government, as well as the appropriate legislative framework that needs to be in place to support these initiatives, and to ensure that the resulting benefits are shared by the whole community.

 

The concept of sharing forms the basis of the 2000/01 budget. That is why the budget’s theme is “Sharing the benefits of Reform”.  This is considered appropriate because the Government believes that the real test for successful reforms is when the community enjoys a better quality of life as a result. The government is therefore committed to doing that.

 Mr Speaker,

 The sound growth achieved in 1999 is expected to continue in 2000. This is expected to be driven mainly by the construction sector with a number of development projects coming into full implementation. These include a large component of the Infrastructure Asset Management Project (IAMP); the construction of tanks for the petroleum tank farm on both Upolu and Savaii to ensure there is security of supply of petroleum products for the whole country and improved competitive pricing; the commencement of the Rural Water Supply project to cover both Upolu and Savaii; and the development of the main port in Apia. Agriculture is also expected to pick up with the recovery of taro production. Fishing is expected to improve with the acquisition of six new large fishing vessels by the private sector.

 With this scenario, economic growth in 2000 is forecast to be about 3-4%, which is in line with the target growth rates announced in the 2000/01 Statement of Economic Strategy.

 Imports are forecast to be 10% higher than in 1999 largely as a result of major public sector projects scheduled for implementation during the period.

 Recovery in taro and continuing growth in coconut cream is expected to boost exports. The fishing industry is expected to grow with the arrival of six new large fishing boats in the year. The garment manufacturing operation is also expected to contribute to export earnings.

                                  The overall  balance of payments  is expected to remain in surplus by around 2.5% of GDP in 2000 as a result of strong development assistance flows. Foreign Exchange Reserves should continue to maintain the six-month import cover target.             The annual inflation rate is expected to be around 3% to take account of the surge in capital imports.