Shaping the economical landscape
Amidst a whirlwind of politics and recession recovery, of lawsuits and loan offers, Rasmussen pieces together his first budget as Minister of Finance

It’s been an interesting time for Wilkie Rasmussen as he prepares to release his first budget as Minister of Finance. Amidst a whirlwind of politics and recession recovery, of lawsuits and loan offers, Rasmussen and his staff have concentrated on fitting together the assorted monetary jigsaw pieces. The end result will form the economical landscape for the next year and beyond, no matter which party emerges victorious from the upcoming election.
Rasmussen recently sat down with Turama to discuss the process of producing a budget, touching on such topical flash points as the budget’s release date, Tourism’s slice of the funding pie, the Toa court case and his involvement with Tav’s tax situation. And, of course, the contentious issue of that $55 departure tax.
Q: When will the general public see the budget?
A: On the 23rd of July it will be tabled. Several days before that, I’m required to return to the Ministry of Finance a fiscally responsible budget.
Q: This is your first budget. It will have your name on it, your stamp on it. Are you happy with it?
A: I’m happy with it, yes. I’m quite grateful to the people who worked on it: the budget committee, the HOMs of ministries who came in and had discussions with me. It’s been a difficult few months in the sense that you have to balance your other responsibilities while dealing with this. That’s why I didn’t want to take any other portfolios. You can see the prime minister has many portfolios. The deputy prime minister has many photos. I didn’t want to touch any of those because I think it was important to tackle the finances and set in place a direction and a precedent so whoever comes on later finds that it’s actually easier to follow this model than to go back to the old days.
Q: Was there any pressure from the prime minister or your fellow Cabinet members on the direction you should take with this budget?
A: No. Since February, every Cabinet day, I would dedicate a little bit of time to enable the ministers to actually get a feel of what state the country is in economically and financially. So by the time we got to where we are now – really looking at the core components of the budget – we are aware that we don’t come and pluck out of thin air projects that we think, oh, I could bid for this, I could bid for that. This has been a huge problem in the past.
Q: What’s the timeframe for putting together a budget?
A: It’s a long process. For the current budget, we started the whole process on Feb. 8. We appointed a budget committee to take in submissions. And then we went through certain time periods where I would gather and consult with Cabinet and consult with the budget committee. The budget committee took up a large portion of that time until last month when they tabled their report, to me and then to Cabinet. Now, I’m in deliberations with Cabinet and with the secretariat of the budget, taking them through the things that were recommended by the budget committee for Cabinet to make decisions on. And then decide what new initiatives, what changes in policy, what changes in structures we need to put across.
Q: You’ve got less than a month now before budget goes public. Are you satisfied with the progress to date?
A: It’s actually a lot easier than what I thought. It’s actually a lot easier than what we had been used to in previous budget preparations. In the space of six hours over two days (last week), we were able to approve a number of recommendations, then isolate out the contentious ones, the ones that we have views upon, and we dealt with some of those.
Q: What type of budget will this be: balanced or deficit?
A: We believe it will be balanced. We started off with a notion that it would be a budget of between $7 million to $8 million of deficit. That was based purely on the assessment of funds that the government had used that were not in appropriation. In other words, some of the reserves that were there got used for other purposes –unbudgeted expenditures got in the way. That’s the only reason why the deficit occurred. But the budget committee went through its sourcing of information from various ministries and departments and government agencies, and managed to bring that right down to $1.9 million. We’re now going through that with a view that we can, in fact, balance it.
Q: What initiatives are in the budget as far as producing a balanced budget?
A: We are having a look at some of the assets of Government that we can, perhaps, sell. For example, we have a property in New Zealand. There’s one staff from Foreign Affairs in it and maybe two staff from Tourism in that building. It’s a free-hold building to the Cook Islands. It’s in the city area where it’s perhaps not quite ideal to be a diplomatic type of place. We’ve sold one building in Wellington a couple of years ago. This idea has been there for some time and it would, basically, bring some money back into the pockets of Government.
Q: Anything else?
A: In terms of other matters, we’re looking at working with New Zealand and with the European Union in relation to better exchange rates on the funds that we receive. The European Investment Bank has agreed for some funds to be lent to the Cook Islands, on a guarantee basis by the government. We have not given guarantee to that because I do not want to take up the space on what we call ‘the quota’. There is a requirement of the Cook Islands which you cannot go over. Our borrowing sits at about 45 per cent of our GDP and we’ve only got five per cent to get up to 50 per cent. If you get up to 49 and 50 per cent, that’s not a healthy position to be, because you’ll be spending a lot of money on repayments. So we’re at 45 per cent and I believe we’re going to take that down in the next year or two if we continue on a similar type of budget process.
Q: Did you instruct the various ministries to tighten their belts – that they weren’t going to receive all the funding they’d requested – and that process has helped balance the budget?
A: Initially, what I did, was call a meeting with all the heads of ministries and tell them they had to look at their own ministries, look at what they had to sacrifice, look at what they don’t need, because this is a special year, this budget for 2010-2011, because we’ve just come out of a recession and a difficult time, so we need all hands onboard. And they did very well. They came back with their own suggestions. After the budget committee had looked at what they could do, they sent each of these ministries and agencies their recommendations and the way that they looked at it and got them got to respond back to the secretariat and me. Then I went through it with the budget committee to see what accommodations would be made and those were taken to Cabinet as well.
Q: We’ve already heard that Tourism is not going to get all the money it had hoped for. Are any other ministries – Health, Education – facing a shortfall?
A: Tourism, in particular, wanted a budget about four times over their previous budget. They were asking for $10 million in total: we’ve given them about $7.5 million. It’s not a reduction but it’s not meeting their expectations. What we are not funding is the Nadi-to-Rarotonga subsidy that Tourism was planning. As far as
Health and Education – all the essential social services – we’re keeping them as intact as possible. Including the activities of Internal Affairs. Internal Affairs had a shortfall of about half a million dollars and we had to come up with that to see them through the whole year.
Q: You’ve endured your fair share of controversy this year. Has that distracted you at all in putting together this budget?
A: Not really. Look, I believe I’m a fairly old hand in politics now. I know that every time I say something, there is a public reaction to it. For example, the issue where people say I’m intervening in repayment of taxes. That’s not true at all. My intervention is this: for many, many years, the tax department has been making deals with people who cannot pay their taxes. They do all sorts of things by arrangement. But we never really get to the point of winding up (a business). A number of Cook Islanders, particularly Maori Cook Islanders, who get into business, have no training as such. They go into (a business) with eyes blind, really. And, in the end, they discover that they’ve mismanaged it. All I’m saying is, intervention across the board, not just for Tav’s – but Tav’s is the illustration – is an attempt to enable these people to have better management skills. But the payment: that is their liability – they have to meet those payments and they find ways to do that, either by borrowing money from the bank or something like that. They must be given some chance, in my view, to say, how do I survive here? That’s what I’m talking about. It’s nothing to do with the government paying their taxes.
Q: Did a situation like the Toa settlement throw a wrench in the works, as it were?
A: Those are the things that you don’t need in any kind of budget. They are expenditures that the government probably should not have incurred. We’ve only paid to Toa $1.75 million and that was for the initial agreement. The other agreement that requires the government to pay up to $1.2 million per year for eight years is the one that we defended ourselves in the court action. I think I need to make it clear: it wasn’t the government that went to court – it was the government that was taken to court by Toa to enforce payment. So we defended ourselves and I think we did reasonably well in that. The outcome really says that, although the contract is binding according to the laws of contract, in terms of repayments, the plaintiff – Toa – is required to supply us with all the details of why these payments should be made. So it’s a two-way process. But, as I speak, there are still some discussions and negotiations taking place. The government has lodged an appeal simply to be on the safe side. If the negotiations turn out to be positive and there is an agreement that would be much better and with lesser liability on the government, then we’re going to move ahead much more happier. I’d rather it was behind us. I’d like it to be concluded, but, at the moment, I believe we’ve handled it very well.
Q: If payments are made to Toa, is that money that won’t, instead, go to the government ministries?
A: Not necessarily. Initially, that’s what we thought would happen. We thought, well, this takes out some of the money from the necessary services. We were afraid of that.
Q: The knee-jerk reaction to balancing a budget it to chop the number of employees in the public service. Any thoughts on that scenario?
A: I must admit I did not support the idea that the public service should be reduced at this point. My view is, you let people work, the people spend money and the money gets circulated around. But, we’ve now come to realize that if we direct for the release of some of the funds that are tied up – for example, BCI has some money tied up into its own investments in the other two banks here – it’s possible for BCI to work in with the government, for example, to offset the loan at the Airport Authority (for the construction of the new departures terminal), so that it doesn’t impact on the budget. It’s that sort of juggling act that we’re doing. We should be able to address any shortfalls that we previously saw.
Q: Is there money tabled towards exploring the seabed sector as far as underwater mining is concerned?
A: That’s one area that we’ve kind of stayed away from. Although there is still some discussion about fast-tracking the process so that exploratory licences could be issued. This is very different from mining licences. The idea is that we may need someone to go out and explore and bring that information back to the government and see the viability of this whole exercise. We haven’t set aside any particular funds for that, although there is a total of $20,000 that can be directly accessed by the ministry involved for that specific purpose.
Q: How tricky is it to put together a budget while knowing there is an election looming and you, and your political party, might not actually be in power to implement it?
A: We developed the budget on that basis . . . that, if the budget is tabled in Parliament or if Parliament is called, the government of the day, the Democratic Party, is under obligation – under the anti-hopping legislation – to pass that budget. They cannot vote against it. That is my interpretation. And I think, at the moment, I can safely say, that they will be there to support the budget. I acknowledge also that the opposition party, in fact, has come forward and said, look, we realize that it’s important for the nation to get a budget done. Compliments to everyone there. I had to convince the prime minister that the best thing would be to go through with the budget. Previously, there was the thinking that maybe we just bite our tongues. Because we can govern right through until Sept. 26 – that’s when the term of government expires. After July 31, three-twelfths of the previous budget comes into play, so we can govern. But it’s not fair to the operations of the ministries and of the government. So we put into place a budget. If we’re successful with the election, then we will come back and assume that budget. But the budget is there for whoever comes in after the election.
Q: What would your general message be to the public? Keep tightening your belts, or the recession seems to be lessening?
A: I think the recession is lessening. I think the public should be confident. Although this budget, I call it a “stock-taking budget”. It was time to consolidate what we’ve got. It’s not a free-and-easy spending budget but it is a budget that, one, addresses the core services; and, two, stimulates economic growth. Those are the two clear things that we want to do. Tourism is our major, major industry here and so we’re not going to forgo some of their requests. But there are other areas that we are looking at, new initiatives for example. We’re going to set aside about $2.5 million for agriculture in the Outer Islands. The pearl industry in the Northern Group will get a fair amount of funding that the farmers themselves could have access to for the seeding process and all of that. I think it is a budget with a message: that we are on the launching pad, but we do need to have a good look and not be silly as we go through the next year.
Q: Will personal income tax be affected at all?
A: There will be no raises in income tax; the income tax stays the same. VAT stays the same. The only possible levy that we could increase is the levy on heavy vehicles that are brought into the country, because of the wear and tear they incur on the roads. We’re also looking at alcohol and tobacco, some increases in levy. But that has been done before and it’s still an ongoing discussion with us in Cabinet.
Q: The day after the budget is passed by Parliament, will the average Cook Islander see any changes in their lifestyle?
A: We hope they will have enough money in their wallets to do a bit of spending, a bit of buying. We’re working at a budget where we can put more money into the pockets of people. At this moment, we are experiencing a bit of growth.
Q: Is there an incentive you can pinpoint in this budget that might help reverse the trend of depopulation?
A: I think out of this budget will come more confidence in the private sector to employ more people, or at least keep some people employed. The budgetary process that we embarked upon is actually not a one-year one. We adopted a plan from the ADB which is a short term/medium term type of budgeting process, so it spans two to three years. The idea is to set a foundation and then you follow that through and then the next phase is the phase where you tackle employment, you tackle all those other things where the government has to directly inject money into commerce to keep the revenue generating.
Q: Economically speaking, is the Cook Islands healthy, as far as you’re concerned?
A: As far as I’m concerned, the Cook Islands is quite healthy. We are on the fringe of being pushed into a developed country status. A lot of regional agencies, international agencies and banks in New Zealand and Australia are quite happy with the way the Cook Islands suddenly decided to change direction. Not to embark on big loans and things like that. I think what’s also unique here for the Cook Islands is that we’re not just lining up like some of the other Pacific Island countries and saying all those concessionary loans from China are good for us. They’re not necessarily good for us.
Q: While we’re on the topic of finances, can you tell us what happens to the other $36 of the $55 departure tax that isn’t returned to the Airport Authority?
A: The departure tax was previously divided between the Airport Authority, the Ministry of Culture and an Environment fund. In fact, $19 does not necessarily go to the Airport Authority – let me clear that up. All of that $55 goes into a pool at MFEM. The Airport Authority gets about $2 million of those funds per year, on the basis that $19 of that $55 is calculated into that $2 million. My view, and my push, is to reduce the departure tax down to about $35 and hand that over to the Airport Authority as a revenue stream for it, in order for it to become a fully self-sufficient state-owned enterprise. We can kill two birds with one stone. We can attract people back to the Cook Islands without fearing that, when they leave, they’ve got to cough up $55. I know Air New Zealand will not incorporate it into the ticket because it’s too high. Lowering the departure tax means there will be (revenue) loss of about $2 million we will have to incur, but the benefits will far outweigh those losses. The benefit of more people coming to the Cook Islands outweighs that. We’ve got to take that risk.
Q: How much does the Cook Islands have in reserve? In loans? What percentage of your budget is aid money and what is generated locally?
A: I could tell you but I’m not going to. What I can say is the Ministry of Finance is still actually working on trying to put together and clearly identify our reserves. It is actually kind of spread out all over the place. One of the tasks, and it’s been going on for a month-and-a-half now, is to collate all of that and see where we are. But in terms of debts, I think we owe about $63 million. I could be wrong. At the moment, we spend more than we have as revenue. That’s the problem that we have. So if we cut this process down, then I believe that, by the middle of next year, the whole thing will change.
Q: What is happening with the superannuation funds?
A: The one thing we do not want to touch – and we are encouraging better management of it – is the superannuation funds. We want to be able to offer people better options and we want to have better investment of those funds. Eventually, we want to bring back some of those funds and invest them in the banks here. To, for example, alleviate mortgage problems. With people who are struggling because of mortgages, there would be some kind of funds they could apply for to relieve them of certain difficulties they might have. That would be the natural result of a budget where you start with your base work and then you move forward.

By John Ireland

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