2015 NATIONAL BUDGET - treasury.gov.pg

1 2015 NATIONAL BUDGET VOLUME 1 ECONOMIC AND DEVELOPMENT POLICIES For the year ending 31st December, 2015 PRESENTED BY HON. PATRICK PRUAITCH CMG, MP TREASURER ON THE OCCASION OF THE PRESENTATION OF 2015 NATIONAL BUDGET 2014 BUDGET , Volume 1 HON. PATRICK PRUAITCH,CMG, MP TREASURER 2015 BUDGET , Volume 1 i FOREWORD Building our nation and providing opportunities for our people It is my great pleasure to deliver the O Neill Dion Government s third NATIONAL BUDGET and the second fully integrated multiyear BUDGET , the 2015 BUDGET . The 2015 BUDGET is not an ordinary BUDGET . Set within the medium term frameworks, it is designed to build our nation and provide more opportunities for our people. The 2015 BUDGET supports continued economic growth by focusing on high impact priority infrastructures, not only at the NATIONAL level, but also at the provincial and district levels.

2 More importantly, it is designed to give each Papua New Guinean a fair opportunity to participate in the development of our nation. The 2015 BUDGET is accompanied by the 2014 Supplementary BUDGET , which reallocates expenditure to high priority expenditures. The 2015 BUDGET is set at a record level of billion, equal to a BUDGET deficit of cent of GDP, lower than the deficit of per cent of GDP for 2014. This is the first step in the right direction given current economic and fiscal situation. The O Neill-Dion government is committed to building Papua New Guinea, but in a responsible manner. Given the need to adequately prepare for upcoming regional and NATIONAL events including the 2015 Pacific Games, 2017 NATIONAL elections and the 2018 APEC meetings, the 2015 BUDGET sets the foundation whilst recognising the need for macroeconomic stability by progressively returning the BUDGET to a sustainable position in 2017.

3 The 2015 BUDGET has five key priorities: enhancing opportunities for our people by building the foundation of our country in 2015 whilst recognising the need for macroeconomic stability by progressively returning to a balanced BUDGET in 2017; further promote the efficient and effective implementation of major projects through improved service delivery designing, scoping and implementation processes; increased direct funding to the provinces and districts with more emphasis on monitoring, evaluation and compliance so as to achieve improved development outcomes; continue to support policy priorities in the education, health, and infrastructures sectors; and continue to strengthen the justice sector, resource Corrections Services, modernise Police and rebuild the Defence Force. The 2015 BUDGET builds on achievements of the past. It is set against a backdrop of 14 years of uninterrupted consecutive growth.

4 Economic growth for 2015 is expected to be a strong per cent supported by the first full year of LNG production. Growth in the non-mining sector is expected to pick up from per cent in 2014 to 4 per cent in 2015 while inflation is expected to decrease to per cent from per cent in 2014 and ease over the medium term. 2015 BUDGET , Volume 1 ii The 2015 BUDGET is about building our nation and providing opportunities for our people. This government is committed to ensuring that sufficient resources are allocated to key Medium Term Development Plan (MTDP) enablers to ensure broad-based economic growth with all Papua New Guineans sharing its benefits. Key priority expenditure areas of the 2015 BUDGET are highlighted below. There will be increased funding for major roads to better link Papua New Guinea with the objective of facilitating access to key services by the rural population and ensure their participation in economic activities.

5 This includes building missing road links in rural areas where the majority of our people are located. In addition, investment into expanding the capacity of urban roads in the major towns and cities of Port Moresby, Lae, Goroka and Mt Hagen are also expected to complement efforts towards facilitating increased private sector investment, jobs creation and increased participation by Papua New Guineans. The 2015 BUDGET also increases and streamlines funding for education. The O Neill Dion Government s free education policy will continue in 2015 . Additional funding is also provided to cater for increased teacher numbers and schools infrastructure. This BUDGET includes funding for Curriculum Development Materials covering the procurement of text and resource books for teachers in elementary and primary schools. Additional funding is also provided for the health sector particularly, for hospitals and health staff.

6 Improving hospital arrangements and capacity to cater for more patients including the accessibility remains a priority objective of the government. Provincial hospitals and rural health services have been allocated increased funding. Complementing efforts on this front is the increase in funding for Nursing Colleges to ensure well trained staff. Medical supplies and other health programs such as interventions for HIV/AIDs continue to remain priorities Other MTDP enablers are allocated increased funding to ensure the momentum in these areas is maintained. Allocations to the MTDP enablers under the different sectors include billion for Administration, million for Economic & Agriculture, billion for Health, billion for Education, billion for Infrastructure, billion Law and Order, billion for Provinces and million for the Social sector.

7 With the increased funding, the government remains committed to enhancing the performance of the public sector to promote efficient and effective service delivery. As part of the 2015 BUDGET implementation, the effectiveness and efficiency of the Public Sector in designing, scoping, and implementation processes will be reviewed. There will be greater monitoring and evaluation of the programs that have received increased funding in 2015 . This is to ensure there is accountability and value is received for the increased funding. Furthermore, the Government remains committed to policy reforms that will maintain business confidence in Government policies and processes. The Fiscal (Tax and non-Tax) Regime Review is expected to conclude in mid- 2015 . The Review s report is expected to inform the Government on the options for the way forward.

8 Other 2015 BUDGET , Volume 1 iii reforms include competition and dividend policies for PNG. The policy frameworks for these reforms are also expected to be completed in 2015 . The 2015 BUDGET is set within the Government s overarching medium term frameworks including the Medium Plan Development Plan, the Development Strategic Plan and the Vision 2050. It is set with a long term perspective and the prosperity of our people in mind. It sets the foundation for all Papua New Guineans to participate meaningfully and benefit from the economic opportunities that are being created by the Government s major public investments. I commend the 2015 BUDGET to the Honourable Members and to the people of Papua New Guinea.. HON. PATRICK PRUAITCH, CMG, MP TREASURER 2015 BUDGET , Volume 1 i Contents FOREWORD .. I CHAPTER 1. BUDGET OVERVIEW.

9 1 CHAPTER 2. ECONOMIC DEVELOPMENTS AND OUTLOOK .. 5 WORLD ECONOMIC GROWTH .. 5 World Economic Growth Outlook .. 5 Inflation .. 6 Commodity Prices .. 6 Copper .. 7 Oil .. 8 Gold .. 9 Agriculture Commodities .. 10 EXCHANGE RATE DEVELOPMENTS .. 11 DOMESTIC ECONOMIC DEVELOPMENTS & OUTLOOK .. 12 2014 Economic Growth .. 12 2015 Economic Growth .. 14 Medium Term Economic and Fiscal Outlook .. 16 LABOUR 17 Nominal Salary and Wages .. 19 MONETARY DEVELOPMENTS .. 20 2014 Monetary Developments .. 20 2015 Monetary Outlook .. 21 CONSUMER PRICE INDEX .. 21 2014 Inflation .. 21 BALANCE OF PAYMENTS AND INTERNATIONAL RESERVES .. 22 2014 Balance of Payments .. 22 2015 Balance of Payment Outlook .. 25 Medium Term Outlook .. 25 RISKS TO THE ECONOMIC AND FISCAL OUTLOOK .. 26 CHAPTER 3. FISCAL STRATEGY AND OUTLOOK .. 27 2014 BUDGET UPDATE .. 27 THE 2015 BUDGET STRATEGY AND OUTLOOK.

10 27 THE MEDIUM TERM FISCAL OUTLOOK .. 28 MEDIUM TERM FISCAL STRATEGY 2013-2017 .. 30 DEVELOPMENT ON THE SOVEREIGN WEALTH FUND .. 32 CHAPTER 4. REVENUE .. 34 2014 AND 2015 REVENUE DEVELOPMENT AND OUTLOOK .. 34 Tax Revenue .. 34 Taxes on Income and Profits .. 35 Domestic Taxes on Goods and Services .. 35 Taxes on International Trade .. 36 Non-Tax Revenue .. 36 Grants and Infrastructure Tax Credits (ITC) .. 37 MEDIUM TERM REVENUE OUTLOOK .. 37 2015 BUDGET , Volume 1 ii Revenue and Grants .. 37 Tax Revenue .. 37 Non-Tax Revenue .. 38 Grants and Infrastructure Tax Credit .. 38 SWF Revenue Flows .. 38 Stabilisation Fund .. 39 Savings Fund .. 39 REVENUE MEASURES AND DEVELOPMENTS .. 39 Major Tax Policy Measures .. 41 Minor Tax Policy Measures .. 43 Make Royalty Withholding Tax (RWT) a final 43 Enhancement of Tax Compliance for Salary and Wages Tax (SWT) Obligations.