Budget Speech
Budget Speech 2006/07
By
Jun 6, 2006

2006/2007 BUDGET ADDRESS

Mr Speaker,

It is with great pleasure that I present on behalf of the Government, the Statement on the Estimates for the 2006/07 fiscal year as required under Standing Order 124.

I. BUDGET SETTING

Mr Speaker and Honourable Members,

This is the first budget of the Government for this new Parliamentary term, and has significant importance in setting the fiscal framework for the implementation of the Government’s policy framework for the next five years. The 2006/07 budget has therefore been carefully framed to take into account the following developments:

1.     The imbalances and inflationary pressures which are arising following a prolonged period of sustained growth. Over the last five years, Samoa has experienced very strong economic growth, averaging 4.0 percent over the period 2000-2005;

2.     The consequential tightening of monetary policy, in combination with the declining terms of trade, and especially the unparalleled rise beyond historical levels in the price of oil.

3.     A lessening in the pace of economic growth that is likely to emerge in the period ahead, as a normal adjustment to the imbalances and pressures which have arisen. In saying that, the economy is expected to consolidate in 2006 and into 2007 with real annual GDP growth estimated at 3-4 percent.

The Government recognizes that much of this high growth has been boosted by its fiscal expansionary position in the last couple of years, in particular, through large expenditure outlays for the restructuring of its national airline, construction of venues and sporting facilities for the South Pacific 2007 Games, the construction of buildings of the Development Bank and the National University and Polytechnic, as well as a number of other infrastructural works. 

As the effects of the economic slowdown flow through, there will be a significant impact on the fiscal position. Your Government is committed however to continue to implement sound economic and financial management to ensure macroeconomic stability and growth in the period ahead.  The Government is confident therefore that its fiscal position for the 2006/07 financial year will help ensure the slowdown is not worsened. This is very important for we are a small isolated developing country, vulnerable to a host of exogenous factors that are beyond our influence or control.  It is therefore critical that we are flexible and responsive to changing global market conditions and local demands in a manner that is fair and consistent that will incur benefits for everyone and not just a few.

Mr Speaker, 

The Budget for 2006/2007 is a balanced budget.  It espouses the fiscal prudence this Government has consistently implemented over the past years; in response to the likely slowdown in growth as the economy goes through a period of adjustment, it has tempered its fiscal position by limiting its investment outlays to completion of the infrastructure requirements for the 2007 South Pacific Games, the Development Bank building and ongoing capital infrastructure developments in road transportation in support of the Games as well as those committed to for completion in the coming year. Most significantly, it proposes further tax and tariff reforms which will realize greater efficiencies in the tax revenue system and liberalize the trade regime further. I shall speak of these initiatives later.        

II. ECONOMIC PERFORMANCE IN 2005

The Samoan economy grew rapidly in 2005.  Real GDP (in 2002 prices) increased by 5.1%, following 3.7 and 3.5 percent growth rates for 2004 and 2003 respectively. The growth in 2005 was the highest GDP expansion in the last 5 years and was driven by increased commercial activities, strong rebound in agriculture production and on-going construction works.  The strong growth in commerce was supported through rapid money supply growth with currency circulating outside the banking system increasing from $30.3 million at end January 2005 to $48.5 million at end December 2005.  Agriculture, the backbone of the Samoan economy recovered and rebounded strongly from the cyclone-affected 2004 level with an increase of 15.1% of real GDP in 2005.  The Construction industry also contributed significantly to the strong growth in 2005 with the completion of the new Aggie Grey’s Lagoon & Beach Resort, the LDS temple and the Aquatic Centre plus other major construction works namely the National University & Samoa Polytechnic campus and the Development Bank of Samoa building.

Looking at our region, the average real GDP growth for the Pacific region has dropped from 3.1 percent in 2004 to 2.7 percent in 2005.  Our other major trading partners experienced positive growth in 2005, with New Zealand recording 2.2 percent whilst Australia registered a healthy 3.5 percent real GDP growth. On the global front, most economies grew more slowly in 2005 when compared to 2004.  For example, the average GDP growth rates for the European Union members slipped from 1.7 percent in 2004 to 1.4 percent for 2005.  Similarly, real GDP growth for both United States and Japan have declined from 4.4 percent to 3.6 percent and 2.7 percent to 1.3 percent respectively during this period.  In this context, it is laudable that our economy expanded strongly between 2004 and 2005. 

Global growth for 2005 has been driven mainly by the phenomenal economic expansion recorded in China of 9.9 percent from the strong growth in export-oriented industrial production.  Energy consumption for China has also increased from around 3 percent in 2001 to over 14 percent per annum for the last 3 years. This increase in energy consumption coupled with demand from the other major industrial economies of the world have continued to push oil prices higher worldwide.

Inflation declined from 16.3 percent at end December 2004 to stand at an annual average rate of 1.8 percent by December 2005.  This was driven primarily by the reduction in local food prices as supply to the Fugalei market returned to normal from the cyclone affected 2004 levels.  Money supply grew by 15.6 percent in 2005 almost entirely due to the rapid growth in domestic credit.  The substantial growth in money supply reflected mainly the increase in credit to the private sector.  The huge surge in imports coupled with a drop in exports as well as a sharp rise in capital account outflows in 2005 resulted in a large overall balance of payments deficit for 2005.  Net foreign assets have declined from 5.6 months of imports cover in December 2004 to 5.1 months as of December 2005.

Over the course of 2005, the Tala’s effective exchange rate against the currencies of Samoa’s major trading partners remained relatively stable. The Tala declined slightly against the USD whilst it appreciated against all other foreign currencies.

Official government outstanding debt at end December 2005 was $461.6 million Tala, a slight increase of $5.97 million Tala from end December 2004.  Government’s external debt is manageable considering this debt is on   highly concessional terms. At present, debt servicing represents only 1.6 percent of tax revenue and 1.8 percent of total foreign exchange receipts according to the Government Finance Statistics classification.

I have appended the Economic Statement, which provides detailed information on our economic performance in 2005.  I strongly recommend Honourable Members to take the time to read the Economic Statement for it provides detailed analysis of economic performance and forecasts for the immediate future, in compliance with the principles of fiscal transparency and accountability.

III. OUTLOOK FOR 2006/2007 AND THE IMMEDIATE FUTURE

Following the very strong economic growth for Samoa averaging 4.0% over the period 2000-2005 and as reflected in the high growth of 5.1% of GDP for 2005,  growth in the near to medium term is likely to moderate somewhat as the economy absorbs pressures built up during the sustained growth. The economy is expected to consolidate in 2006 and into 2007 with real annual GDP growth conservatively estimated at 3 - 4 percent. This moderation reflects the impact of tighter financial conditions, along with consolidation following a strong growth spurt. Samoa’s outlook is also relatively at par with the latest projected global growth of 3.6% in 2006 and 3.4% in 2007 at market exchange rates.

Economic momentum within the Samoan economy will build up again from late 2007. By this stage, financial pressures from the 2007 South Pacific Games and DBS building are expected to have eased considerably and the expected benefits from the games realised.  Excesses built up during the expansion phase will no longer be such a constraint on growth and infrastructure investment will be adding considerably to growth.

The strong growth experienced in the last five years was largely driven by government’s investment commitments. Over the years this has exerted pressure on the balance of payments and government’s liquidity position with domestic financial institutions. It is imperative therefore that we stand back and consolidate what we have achieved keeping in mind the need to ensure macroeconomic stability is not compromised. This will require a combination of monetary and fiscal measures to ease the negative impact of a rapidly growing economy.

To maintain macroeconomic stability therefore, the government is tabling a balanced budget for 2006/07. The government’s financial position with the banking system will again be strengthened as a result and would restore and strengthen liquidity in the banking system, allowing the banks to continue to finance private sector credit. The huge capital commitments for the Games, the DBS building and other pressing priorities of government, namely education and health services coupled with the need to maintain a balanced budget, has resulted in the introduction of some revenue policy initiatives that I will introduce later on which will take us through the last half of this decade.

I believe the economy is strong enough to uphold these new policy changes, and that the dampening effect this will have on domestic consumption will be short lived whilst at the same time consolidating the government’s fiscal position. The exuberance, building activity and benefits associated with the 2007 South Pacific Games will offset the dampening effect of these policy changes on consumer spending.

On the external front, the overall balance of payments may come under pressure as a result of the widening merchandise trade deficit. This will be offset to some extent by the expected increase in remittances and tourism revenues. Foreign reserves in terms of import cover are expected to remain at above the minimum target level of 4 months imports coverage. The tightening of monetary policy is expected to exert some pressure on the demand for domestic credit in 2006 as well as money supply. Inflation is projected to be above 5 percent by end 2006.  The major drivers for the high inflation rate are increasing oil prices and the impact of the revenue initiatives I will be speaking about later. It is envisaged that world demand for fuel will continue to exceed supply and as a result crude oil prices are expected to continue to increase which poses a real threat to price stability.

IV. BUDGET STRATEGY

Mr Speaker, Honourable Members

As I have stated at the outset, the 2006/07 budget has been formulated to support macroeconomic stability, by ensuring that the stance of fiscal policy does not contribute to any further adverse impact. The budget strategy for 2006/2007 therefore aims to achieve a balanced budget.  The objective of this is to sustain macroeconomic stability whilst ensuring adequate resources are available for private sector development.  An overall deficit of no more than 3% of GDP will enable us to finance key investment projects, that have been evaluated and found to be viable.

V. BUDGET MEASURES

Mr Speaker, Honourable Members,

I would now like to briefly summarize the main aggregates of the 2006/07 budget.

The 2006/07 budget is projected to achieve an overall deficit of $32.91 million which is being financed from soft term loans of $33.26 million Tala.  When expressed in government finance statistics, the overall deficit is equivalent to 1.4% of GDP. The deficit is well below the 3% of GDP target and is considered sustainable given that a large part of the budget outlays is for financing key investment projects.

VI. REVENUE MEASURES

Mr Speaker, Honourable Members,

On the revenue side of the budget, I am announcing a revenue package with measures that include the reduction of certain taxes as well as increases to others.  These measures are part of the ongoing reform process that commenced with the introduction of VAGST in 1987, and which has been restructured progressively since then.

The reforms implemented in the last decade include a massive reduction in duty rates – top rates that were previously in the range of 60% to 100%, have been reduced to 20%.  Intermediate rates that were 35% and more have been progressively reduced to only 8%, 5% or 0%. Some of these items which are now currently duty free include basic foodstuff such as rice, flour, sugar, chicken, and medical supplies.  With personal income tax, the tax free threshold has been progressively increased from $6,000 to $10,000, while the thresholds for higher tax rates have also been lifted substantially.  The top personal tax and corporate tax rate has also been reduced from 35% to 29%. All excise taxes were abolished except on cars above 2000cc engine capacity, tobacco, alcohol, soft drinks and petroleum products.

The most recent decision by the UN Committee on Development Policy (CDP) to graduate Samoa by the year 2010 from the category of least developed countries (LDC) will have significant implications on the cost of future borrowing and debt servicing in particular. This decision has come about from the CDP’s assessment that we have consistently demonstrated good economic growth and high levels of social and economic development that far exceed criteria levels set by the CDP for us to remain as an LDC state.  

The regional agreements PICTA (Pacific Island Countries’ Trade Agreement) and PACER (Pacific Agreement on Closer Economic Relations) governing trading arrangements between member countries of the Pacific and New Zealand and Australia, while at the international level, the proposed EPAs (Economic Partnership Agreements) between the Pacific members of the ACP Group and the European Union, as well as our future access to the World Trade Organization (WTO) have significant bearing on our narrow resource base when we comply with all the requirements to support the liberalization of trade.

Mr Speaker and Honourable Members,

I have outlined a snap shot of the major revenue measures implemented to date, and the ongoing developments with significant impact on our revenue base. These underpin the following key objectives of Government:

(i)    To phase out eventually, tariffs and appropriate taxes in keeping with our commitment for full integration into the evolving international trade regime, and enhancing VAGST as a major revenue source for Government, along with other fees and charges;

(ii)  To raise net additional revenue to fund Government services that will benefit everyone;

(iii)To finance priority sectoral investments such as education, health, agriculture and infrastructure developments;  and

(iv)            To introduce measures during this transitional period, that will support Samoa’s graduation from the Least Developed Country category.

Mr Speaker,

 The Government strongly believes that human resource development is the key to long-term development for Samoa.  A well-educated labour force and a healthy population are key ingredients to sustainable development.  However, there has been growing demand on the budget in the delivery of these services. Health expenditure has increased dramatically over the years.  In this respect, Government will be reviewing the cost of provision of health services, especially the overseas medical treatment scheme with a view to introducing appropriate measures that would provide some proportionate cost sharing of these services given their continued escalation. The provision of education services and the necessary infrastructure in an evolving modern society have both increased albeit at a faster pace than growth in Governments’ receipts.  In other words, we will not be able to meet our community aspirations for continued progress in developing Samoa’s community services and infrastructure obligations whilst maintaining a sound fiscal position.  We cannot continue to accumulate budgetary deficits and keep on borrowing as it would jeopardize our ability to borrow in the future as well as the value of our currency with long term effects that would undermine the huge progress we have achieved thus far.

With this in mind, I would like to announce the following revenue measures:

1.     VAGST Changes

From the 1^st October 2006, VAGST will increase by 2.5% from12.5% to 15.0%.  The date chosen will allow Government and business alike to adjust their systems and pricing to reflect the new rates before the increase takes effect. The Government has not taken this decision lightly, and has had to balance the demands on Government for increased services and infrastructure, maintaining a responsible budgetary position, and a desire to further restructure the taxation system.  The impact of the increase in the VAGST rate will be partially offset by reductions in income taxes, which I will outline shortly.  In considering the impact of this increase on ordinary Samoans, I would also like to emphasize that VAGST does not apply to a range of basic items such as electricity, water rates, taxi and bus fares, most medical and education fees, and most raw fish, fruits and vegetables.

Turning to an administrative matter, the Government will also raise the turnover threshold at which businesses are required to register and pay VAGST, from $52,000 to $78,000 per year.  This increase will mean that about 100 businesses currently registered for VAGST will no longer have to remain registered – reducing compliance and VAGST costs for those businesses, and freeing up the Revenue Ministry to focus administrative resources on higher priority work.

The net increase to Government revenues from the VAGST changes is estimated at $14.75m in 2006/2007.

2.     Income Tax and Company Tax Reductions

The Government will further compensate for the VAGST increase by reducing income and company taxes.  For individuals, the tax free threshold will be increased from $10,000 to $12,000 although the ceilings will remain for all other tax brackets. In other words, an employee with a gross income of up to $460 in a fortnight will not be taxed. At the same time, the top personal tax rate, and the company tax rate, will be reduced from 29% to 27%.  The major adjustment of company tax from 35% to 29% took effect in 2000 while individual income tax rates and thresholds were last adjusted in 1999.

These changes will apply from the start of the new income tax year on 1 January 2007, and are expected to cost $1.85m in 2006/2007.

3.     Excise on Soft Drinks, Alcoholic Beverages, and Tobacco Products

Excise rates in Samoa are mostly set at fixed rates, which mean that they ought to be indexed periodically to compensate for inflation.  Existing rates were last adjusted in 2002. The Government is also concerned to improve health outcomes for the community, and can assist the achievement of these outcomes by imposing additional excise on these products. 

Against this background, the excise on soft drinks and alcoholic beverages will be increased by 10%, from 1 July 2006.  The excise on soft drinks will increase from 33 sene per litre, to 36.3 sene per litre, whilst the excise on alcoholic beverages will increase from $33 to $36.30 per litre of alcohol.  This equates to an excise increase of approximately 17 sene per 750ml bottle of beer, and 33 sene for a bottle of white wine.

The excise on tobacco products will also be increased.  The excise on roll-your-own tobacco will be increased with effect from 1 July 2006, from $127.36 per kg, to $185 per kg.  The excise increase on cigarettes will be increased from $149.18 per 1,000 sticks, to $175 per 1,000 sticks, with effect from 1 February 2007. 

I also wish to point out that the fixed excise rate on petroleum fuel is also due to be indexed, but the Government has chosen not to do so at this time due to the high world oil prices currently prevailing.

The increased revenue expected to be generated from these excise measures is $4.7m in 2006/2007.

4.     Revenue Ministry Administrative Fees

The administrative fee imposed for the late filing of income tax returns will be increased from $10 to $100 in the case of individuals, and from $25 to $300 in the case of companies.  These fee rates have not been adjusted since they were first set in 1974.  I should emphasize that the aim of the fee increase is not to collect more fee revenue, but rather to generate improved compliance with the income tax laws that they are designed to support.

The administrative processing fee applied for certain customs entries will also be increased – from $10 to $20.  The existing fee was first set in 1999.

Both of these administrative fee increases will apply as soon as the amending Regulations take effect.  They are expected to generate additional revenue in 06/07 of $700,000.

VII. EXPENDITURE PRIORITIES

Mr. Speaker, Honourable Members

I would now like to highlight key expenditure priorities the Government will implement during 2006-2007.

The proposed total expenditure amounts to $539.7 million Tala representing an increase of 16% over the 2005/06 financial year. The increase in expenditure reflects Government’s ongoing commitment to the development of infrastructure and facilities for the South Pacific Games in 2007 as well as implementing strategies in the key priority sectors as identified in the 2005-2007 Strategy for the Development of Samoa. Provision has been made in the budget to continue the phased increase in salaries in the public sector, with the final increase to be implemented in the financial year 2007/2008 as announced last year.

1. Education

Investment in education remains a priority area. Development of rural schools is imperative to support equal access and learning opportunities for all our young people especially those in rural areas. 

              (i).      A total of $2.5m has been appropriated for village schools stationery supply and a further $0.08m allocated for the establishment of school broadcasting programs enabling rural students to have access to current curriculum programs on air. The application of modern technology to learning will also be pursued, and the government is keen to work with its development partners where information and communications technology (ICT) applications can be implemented successfully.

            (ii).      The start of the jointly funded second phase by Australia, New Zealand, Asian Development Bank and the Government of the Education Development Project (EDP II) will address a number of problems such as enhancing teacher training, further development of curricula and infrastructure works to support the mainstreaming exercise already started with primary schools but at college level.

          (iii).      Opportunity for post secondary education is also critical if Samoa is to advance and explore its comparative advantages fully, thus $5.2 million Tala has been allocated for the Government Scholarships Scheme as well as $0.85million Tala for NUS sponsored students.

         (iv).      Private and Mission schools will continue to receive assistance under the government grant scheme to schools at a total of $4.0m Tala. 

           (v).      Government’s objective in this sector is to ensure all children receive good education through enhanced teacher quality and improved teaching materials and facilities. Hence, $0.28 million Tala has been provided for resources required to introduce new subjects such as Agriculture Science, Food & Textiles, and Technology & Design to all secondary schools. In addition, $0.13million Tala has been allocated for renovation of Avele College teachers’ accommodation.

         (vi).      Further support is provided through a grant of $7.0 million Tala for the newly merged National University of Samoa and Polytechnic. This is in addition to the $15.8 million Tala total grant from JICA for completion of the Polytechnic campus.

       (vii).      $1.13million Tala has been allocated to establish the Samoa Qualifications Authority as a new public body independent of the Ministry, in addition to the $2.38 million Tala from UNDP to assist the institute in its first year of operation.

     (viii).      I would also note here the valuable contribution made by our development partners over the years to assist with development of education infrastructure in the rural areas, such as the recent assistance from the People’s Republic of China towards the school at Aele.

2. Health

This year sees a new beginning in the provision of health services with the separation of public hospitals and their operations under a separate arrangement and structure from the Ministry.  The role of the Ministry will be confined to policy advice and regulatory matters, in addition to being responsible for all primary health care. The Samoa Kidney Foundation will also be operated independently to ensure the subventions to all these entities are clearly defined for improved transparency and accountability on the delivery of health services. At this point, I would like to acknowledge the generosity of some of our church institutions such as the Congregational Christian Church Women’s Fellowship Committee, the Methodist Church, Assembly of God and the Peace Chapel towards the Samoa Kidney Foundation.  These funds together with the Singapore Kidney Foundation generosity have helped the government establish this critical health service.  We are most indebted to these organizations and look forward to their continuing support as well as others in the private sector to sustain the operations of our National Kidney Foundation.

The allocations for these institutions are as follows:

Ministry                                                                 $ 5.9million

Samoa National Health Services (hospitals)             $38.9million

Samoa Kidney Foundation                                     $ 2.6million

              (i).      A provision of $0.7m for essential capital requirement for the Samoa National Health Services has also been included under its subvention

            (ii).      $5.4million Tala has been provided for overseas medical treatment while $0.27million Tala has been provided for the Sleep Apnoea Unit. 

          (iii).      $0.10million Tala is earmarked to commence construction of the nurses hostel

         (iv).      $0.03million Tala has been allocated for the village based health exercise program to promote healthy living within our communities. This is a new preventive initiative promoted by the Ministry.

Mr. Speaker and Honourable Members,

I am pleased to report that contracts have now been awarded for refurbishment of Lalomanu, Safotu and Poutasi District Hospitals under the World Bank funded Samoa Health Sector Management Project. This outstanding component of the project is expected to be completed by December 2006. For this purpose, $1.2 million Tala is included in the Ministry of Health’s budget for counterpart costs to this critical project.

3. Agriculture

The immediate goal in 2006/07 is to consolidate agricultural production.  Special emphasis on the development of agriculture markets will give farmers the necessary confidence in developing this important sector.  In support of that goal, a total of $12.0 million Tala has been allocated by government for the agricultural sector, which includes the following expenditures. 

(i)                With Government’s continuous efforts to promote private sector commercial fishing, community involvement in in-shore fishing as well as aquaculture,   $1.7million Tala has been allocated for the output of Fisheries Management, Planning & Research Services.

(ii)              The infrastructure for this particular sector will be improved immensely with the completion of the new Fisheries wharf, fish market and office facilities currently under construction with assistance from the Japanese Government totaling $13.4 million Tala.

(iii)            In support of improved border management in terms of protection against threatening pests and diseases, agricultural quarantine and regulation services has been allocated $1.0million Tala of the Ministry’s budget.

(iv)            $1.4million Tala is provided for delivering of livestock production, health and research services to the communities with the aim of improving livestock production for subsistence and commercial purposes. The meat processing centre is now fully operational for stakeholder training, Ministry research and is being promoted to cater for regional training on meat processing. I am also pleased to announce that the final loan repayment for the cattle shipment in 2003 has been included in this budget.

4. Infrastructure

Priority infrastructural developments for 2006/07 include the following, which are critical for the continuous support of other sectors:

(i)                Electricity

The budget continues to cater for the cost of community service obligations carried out by the Electric Power Corporation for rural electrification, consumption of street lights and capital works in the amount of $10.7 million Tala. On the other hand, the Corporation will be paying the Government the same amount to reduce its on-lending liability.

In addition, a subsidy of $2.0million Tala is provided to the Electric Power Corporation to meet the VAGST cost from increased fuel prices, especially for diesel fuel for its generators.

(ii)             Water

A total of $2.98 million Tala has been allocated for community service obligations carried out by the Samoa Water Authority.  In addition, $0.88million Tala is included as counterpart costs to the EU/Rural Water Supply Consolidation Project, the total cost of which is $60 million Tala. Another $0.52 million Tala is earmarked to meet Government’s counterpart contribution to the Sanitation and Drainage Project funded by the ADB which is now under implementation and is scheduled to be completed in 2009. The total cost of this project inclusive of technical assistance grants and loan is $35 million Tala.

(iii)           Telecommunications

The World Bank funded Telecommunications & Postal Sector Reform Project is allocated $0.34million Tala as counterpart costs.  The latest development of this project has seen the issuance of a second license for mobile telephone services awarded to Samoa Digicel Ltd, which is a joint venture between a foreign and local company, CSL. It is anticipated that the combined services of the three operators will go a long way towards achieving full coverage of the country towards the end of the second half of this year.  Further notable developments include the issuance of phone cards, introduction of home zone phones, reduction in prices of international communications, fast growing establishment of internet cafes and centers in rural communities and pay phones around the country.

  In addition, I am pleased to announce that the appointment of the Telecommunications Regulator will take effect in the next two weeks and this will see the regulatory functions removed from the Ministry of Communications and Information Technology, which will focus on overall sector policies. A provision of $0.92million Tala has been included to establish the office of the Regulator.

The independent Regulator will be responsible for monitoring the performance of all operators to ensure fair competition and best practice, as well as promoting universal access for our people.

(iv)           Roads and Bridges

This year, the country experienced serious flooding from phenomenal heavy rainfall which did great damage to some of the  infrastructure. Consequentially, substantial resources will continue to be poured into the maintenance and construction of roads and bridges to ensure accessibility across the country. For this financial year, development in this area will focus on works to support the South Pacific Games in 2007 to ensure traffic flows smoothly during the Games. For both Upolu and Savaii, a provision of $6.1 million Tala is earmarked for routine road maintenance and $2.4 million   for general maintenance.

A total amount of $5.0million Tala has been allocated as counterpart costs for the ongoing Infrastructure Asset Management project (phase II). The Government will secure a Supplementary Credit to finance additional road works required such as critical fords / bridges within the town area, but also to upgrade critical infrastructure in readiness for the Games and in response to disaster management.

Rural development includes $1.5million Tala allocated for construction of Salani bridge and $2.3 million Tala for completion of Fagaloa road.

5.     Tourism Development

As a priority sector identified in the SDS 2005-2007, Government will continue to invest in tourism development in order to ensure foreign exchange inflows and employment opportunities are created particularly in rural areas.

As part of Government’s on going initiative to effectively market Samoa as a tourist destination, $3.7million Tala has been allocated for the Samoa Tourism Authority. This amount includes a provision of $200,000 for marketing activities jointly carried out with our other stakeholders.  It is envisaged that marketing of Samoa by the Authority will ensure the upcoming South Pacific Games is well attended by overseas tourists.  It is also important to ensure that there is a sustained level of visitors so that occupancy rates are maintained at levels that can support the hotel and visitor industry throughout the year.  The announcement by the Chinese Government to designate Samoa as a tourism destination for Chinese visitors and the joint effort of the Samoa Tourism Authority and our private sector stakeholders to tap on this potential will be a bonus.

6.     Business Development

Enhancing the enabling environment for the private sector as Government’s partner in Samoa’s development will continue to be a priority for this period.

(i)                            The annual grant of $150,000 is included for the Small Business Enterprise Centre (SBEC) to assist with its operations.

(ii)                          $40,000 is earmarked as financial assistance to private sector organizations.

(iii)The Government is again providing $15.0million Tala for completion of the Samoa Development Bank Building that will be opened in February 2007. The building will not only improve the beach road landscape but will also add more rental space for businesses. Given its central location, this should attract other organizations seeking to invest here for accommodation at the Development Bank of Samoa building.

(iv)                        $76,000 has also been included in the Ministry of Commerce, Industry & Labor’s budget to host the annual CODEX meeting in October 2006.

7.     Sports Development

(i)                South Pacific Games 2007

In view of Samoa hosting the South Pacific Games in August 2007, $37.5million has been allocated to complete infrastructure development targeting the test games in December 2006, full on marketing and promotions of the Games, and development of Team Samoa. Infrastructural development will see both venues (Faleata complex and Apia Park) upgraded to standards that will enable Samoa to host international games after the South Pacific Games. Funding is also provided for sports equipment required for the Games and training of our athletes. Improvement will also be done to Malifa compound buildings for hosting the athletes’ village in addition to the NUS campus. 

(ii)             Apia Park Upgrade

I would like to acknowledge the $15.6 million Tala assistance from the People’s Republic of China towards upgrading the Apia Park as the venue for other sports as well as for the opening and closing ceremonies of the South Pacific Games 2007. This is in addition to the $2.1million Tala earmarked for sports coaches and technical assistance in facility management.

Government is also providing $0.9 million Tala for the Apia Park Board which includes $0.6million Tala for sporting equipment needed for sports hosted at the Park such as athletics, tennis, basketball, netball and rugby.

For sports development in the communities, $0.1million Tala is provided for construction of sports fields and $0.1million Tala for Samoa Games held annually to develop our local sports persons. In addition, $0.2million Tala is included for assistance to sporting bodies attending international sporting events or hosting national sporting events.  The high level of investment in sports is a recognition by the Government of the tremendous potential of sports for gainful participation of our youth that will also have direct economic benefits to the country.

8.     National Security

In recognizing the need for a safer Samoa in both tourism development and in attracting foreign investors, national security has become a priority with the rising influence of drugs resulting in violence and abusive behaviour. In this respect, the Ministry of Police & Prisons budget has been substantially increased to ensure maximum community safety and public order.

(i)                            The ongoing institutional strengthening project at the Ministry will see the construction this coming financial year of a new Police Headquarters that will not only improve the working environment for police officers, but provide a much needed security system to support the transnational crimes unit and the Ministry to counter the rising crime rate. This substantial initiative is financed by AUSAID and NZAID to the total value of $ 11.2million Tala.

(ii)                          Government on the other hand is providing funding for the required police force and has included $0.16million Tala for procurement of 6 vehicles to ensure immediate response to emergency calls and daily vehicle patrols.

(iii)$1.6million Tala has been allocated for establishment of the Samoa Fire Services Authority in 2006/07 once the Act is passed by Parliament. The separation of the Fire Services from the Ministry of Police and Prisons will ensure resources are directed to strengthening this vital service which is often under resourced because of competing priorities when it was previously housed under different Ministries over the years.

(iv)                        $0.16million Tala is earmarked for overseas peacekeeping missions as Government’s obligation to the United Nations.

9.     Legislative

(i)    Contribution to political parties has been increased to $150,000 and will be given as financial assistance to strengthen the administrative framework of political parties for improved policy research to aid the development and quality of dialogue and debate in the House, as well as the overall administrative framework of political parties towards greater democratization of our system.

(ii)  $1.1million Tala has been allocated for renovation of the roof of the Fale Fono with $0.07million Tala for extending the seawall to cover the background of the Parliament and Legislative office. In addition, we have secured assistance of the Government of China for financing of a Parliamentary complex to house offices for Parliamentarians.

Additional Assistance

I would like to record our appreciation to the Chinese Government for their generosity to extinguish our debt to date of RMB Yuan 95.0 million, or approximately $33.0 million Tala. As well, they have approved the construction of a judicial and court administration building, and we are grateful to them and all our development partners for their continuing assistance.

Unforeseen Expenditures

In line with the provision of Section 29 of the 2001 Public Finance Management Act, an allocation of $3.6 million tala has been provided to cover unforeseen expenditures that may arise during the course of the financial year.

VIII.  SECOND SUPPLEMENTARY ESTIMATES 2005/2006

Mr Speaker and Honourable Members,

The Government is also proposing to table together with the Main Estimates 2006/2007 a Second Supplementary Budget for the financial year 2005/2006.  This supplementary budget includes a total of $3.6million Tala of additional expenditures mainly financed by reallocation of resources within and between ministries’ budgets of $3.4, producing a net increase in expenditure programs of $0.23 million Tala.  Without any additional revenue posted for the remainder of the current financial year, this leaves an overall budget deficit of $63.8million or a small cash surplus of $4,631 Tala.  This Supplementary budget therefore is proposed to re-allocate resources within ministries’ budgets to meet commitments where savings exist and to clear unauthorized expenditures of $0.52 million for the last six months of the financial year. 

IX. CONCLUSION

Mr Speaker and Honourable Members,

The budget we have tabled today has been designed to set the basis for continuing the sound policy achievements and commitment this Government has had from the beginning to responsible economic and financial management. As difficult as this may be at times, this Government has also been open about taking decisive action on protecting the stability of our economy. Without this commitment, we cannot develop further our economy given our vulnerability as a small open economy to the impact of natural disasters and external shocks which we need to prepare for and guard against.

 Mr Speaker, Honourable Members,

In closing, I would like to thank our people for their steadfast support and belief in our efforts to create and strengthen opportunities for improved participation of our people in the economy, and overall development of the country.

I would also like to thank our development partners for their support, and further acknowledge the ongoing work to harmonize assistance to gain efficiencies as well as address timely our development needs. Over the years, assistance to Samoa has ranged from large investments in infrastructure to technical assistance and training.  The successful implementation of our public sector reforms in the last ten years was made possible with their support and encouragement, and we are truly fortunate to have such goodwill and generosity from our friends and partners.

The task remains a daunting one for a small open economy like ours with a limited economic base, and yet when we reflect on how far we have come in our journey to realize our vision for an improved quality of life for all our people, we acknowledge not only the efforts of all of our people and our development partners, but beyond and above all, the redeeming hand of our Lord.  

I commend the 2006/2007 Budget to the House.

May God bless Samoa.

Soifua.