Government revenue up but the picture at ground zero is a lot different
At a media conference on Wednesday, Minister of Finance Hon Mark Brown released his Ministry’s report for the quarter ending September 2011, on government’s financial position.
The report indicates revenue is up against Budget by 7 per cent, however it is a concern that VAT, company tax and withholding tax are down on forecast. Another concern is the high private sector debt.
In respect of VAT, company tax and withholding tax, government expects a minor recovery later in the year probably as a result of Vaka Eiva and the 800 odd overseas visitors the event is expected to attract.
Year’s end is not traditionally a good period for overseas visitor numbers and Cook Islanders returning for the holidays do not generally spend much as or add significant new money as the cost burden falls mainly on their local relatives.
The high private sector debt is a concern because of the high interest rates. There has been little evidence of competition between banks to bring down interest rates. When was the last time you saw an advert in the media offering competitive interest rates? If no competition is forthcoming, government may need to consider intervention to create competition. This intervention need not be legislative, rather it could mean licensing other banks to enter the market.
The Times is of the view that there are two economies at work. There is the tourism sector whose members do fairly well as visitor numbers increase. Then there is the local economy made up of local businesses who rely partly on a trickle down effect from the tourism sector to survive. The Times is of the view that not enough of the cash benefits of the tourism industry is getting to the ordinary people who are locked into the local economy.
The Times view is that with a small, asset rich population, little in the way of export earnings and a small light industrial base, there is little cash in circulation making the local economy sluggish and barely moving.
To test this view, the Times approached a number of local businesses not directly connected with the tourism sector, for comment.
Comments
1. The manager of one large employer said, “Cash flow is slow.” He added that major work had dried up and the company was surviving on piecemeal contracts and by reducing staff working hours. He felt government needed to inject some capital into the economy to put more cash into circulation. Tourism was the main industry but the cash benefits were not trickling down to the ordinary people.
2. The operator of a small retail outlet told the Times many people coming into her outlet had conveyed their views to her on the local economy. She said, “People are now more careful with their spending. They are looking for bargains.” She added people were not happy with price rises and many were struggling with high interest rates. Many were frustrated and now asking, “Whose lifestyle are we working to support?” She added that sales to tourists had dropped and any tourist who did come in, was a bonus. Interestingly, she said more people were not traveling as much locally because they were being careful with their petrol. She said low rates of pay meant people had to have up to three jobs to survive and low rates only appealed to foreigners who remitted money overseas. This meant less money being circulated in the local economy. She said her business was struggling like everybody else. She has plans to expand her business but high interest rates have been a deterrent.
3. A local businessman with connections to a wide range of local businesses told the Times, “People are not spending.” He said the economy was “slow” and probably “stagnant.” He said people were waiting to see what was going to happen and some were watching with concern, the events unfolding in Europe in regard to the Euro monetary crisis. Some people were concerned at the performance of government.
4. One business owner commented that while they hadn’t noticed a considerable change in their own figures at this time, they had noticed that businesses they supply to had been starting to get quieter. Also that it was generally felt amongst those they supplied to that people are spending much less and don’t have that same budget that they used to.
5. Another business owner commented that sales were a little erratic and seemed to go through stages where it would be extremely quiet one week followed by a period of intense sales and activity. Furthermore, it seemed that it was impossible to predict when these periods would occur.
Both business owners commented they had noticed an increase in visitors to the island bringing all their groceries in from overseas, which was felt to be detrimental to local shops, supermarkets and food establishments.
Next week, the Herald will look at the matter of Business confidence. -Charles Pitt

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