The Asian Development Bank says the National Budget has lays out some of the concrete plans for fiscal consolidation, which it says Government aims to reduce the fiscal deficit from 11.9 per cent to 6.2 per cent in 2023.
According to its Pacific Economic Monitor, the report highlighted that the Government intended to reduce debt to GDP to 4.8 per cent in 2024, relying on a combination of revenue policy changes, nominal GDP growth and a recovery in the tax base to offset the increase in expenditures and bring down the debt-to-GDP ratio.
The report said that while nominal debt is expected to increase up to the Year 2026, the Government is anticipating the debt-to-GDP ratio to fall from 88.2 per cent in 2022 to 81.2 per cent in 2023 and to 79.3 per cent next year as Gross Domestic Product grows.
On the revenue side, the Government intends to raise the VAT rate to 15 per cent which is expected to increase VAT revenue by 50 per cent, alongside improving economic activity.
ADB said corporate tax rates will also be raised from 20 per cent to 25 per cent, while tax for tourists will be increased gradually.
The report adds that for expenditures, operating payments are budgeted to increase by 10.9 per cent to cover additional staffing needs and increased superannuation contributions.
Total capital expenditures will increase by 23.6 per cent as Government increases spending on roads, water, health and energy sectors.
“While the intent of the budget is clear, its impact on sustainable economic recovery may be tested.”
“Higher tax rates can be expected to dampen consumer and business demands. The planned higher expenditure may lead to more imports, putting pressure on Fiji’s current balance of payments position,” the Report said.