Maoate works on lifting all levies by 2008


In a nation with one of the smaller economies of the Pacific Islands Forum members, the economic base to the spending pie is made of four key sectors.

Tourism, offshore banking, marine and agriculture dollars have all borne witness to the changing fortunes of Cook Islanders from the economic crisis of the late 90s to prosperity. And FEM is a common acronym there, tagged to the Finance and Economic Management ministry.

And while FEMM 2006 travelled down memory lane, two key members of the three-person national delegation to the 2006 meeting—financial secretary Kevin Carr and deputy prime minister Dr Terepai Maoate—would have looked back with a sense of relief since more than a thousand public servants lost their jobs in the transition to fiscal and public sector reforms in 1996.

To their credit, the Cook Islands delegation also roped in the youngest official to the FEMM meeting, 25-year old Dallas Young, in order to expose an impressive vein of young cadres in the public service to regional and international meetings.

In report card terms, the Cooks has made a bounce back from the nightmare of the late 90s. Revenue predictions of an income levy take of NZ$3 million for 2006 were doubled in reality.

The NZ$6 million tax take helped Maoate, in charge of the finance portfolio, to make the announcement which has the private sector and many consumers smiling—a virtually total lifting of all import levies in a country which heavily relies on imports to fuel its needs.

To give you an idea of how much revenue the government is kissing goodbye—NZ$5.7 million of that total take is from import levies, with the rest coming from Value Added Tax.

It’s been that loss of income to the public coffers which has made previous finance ministers hesitant to take the leap into levy-free land. But Carr says Maoate just felt it was time to make the move.

This despite fears that the lost income meant pet projects (usually those that involve ministerial discretion and can’t attract donor funding) would have to be foregone.

Winning his cabinet colleagues over was easy once the tax-take came in at double the forecast to absorb the cut in income from levies.

Carr is adamant though, that the cut to government income doesn’t mean a loss for Cook Islanders.

“It really represents a transfer in money from the government to the private sector and to the consumers. Both should be better off,” he says.

He notes that with that injection into the private sector, the spin-off into economic growth and increased revenues to government from the employment sector would still keep a healthy balance.

While import reforms kicked in on July 1, 2006, just as the Pacific delegations were en route to FEMM 2006 in Honiara, all eyes will be watching the Cooks with interest as Pacific Islands Forum members under their regional commitment to PICTA have to ease taxes on imports by 2013.

“Others have started, but none as comprehensively as the Cooks, and you could say we’ve gone there earlier,” says Carr.

In fact, some levies have already been lifted in recent years, for fuel used in power-generators, inter-island shipping and pearl farming.

No models on other countries have been sought. But the common practice of retaining ‘sin taxes’ on tobacco and alcohol will remain in the short-term; as will import levies on soft drinks and a 50% levy on ice cream, which should keep public health educators smiling, pork, which competes with local industry, and sea freighted eggs, aimed at discouraging their import and moving consumers to healthier air-freighted choices.

The plan, says Carr, is to aim for these last levies to be lifted as well in two years time.

In the meantime, he will be keeping up his informal networks with the three commercial banks in the Cooks, while watching the tourism numbers to the country and monitoring VAT revenues, which are even more important for gauging a postcard glimpse of economic health.