Foreign Aid

PNG tax reform, not overseas aid

Paul Oates
Masalai blog
June 18, 2010

In the PNG news, there is an article by Isaac Nicholas [PDF] that quotes the results of a European Union funded geological survey. The survey data apparently revealed potentially large mineral deposits in the PNG Highlands. The minerals mentioned were copper, gold, silver, zinc, chromium and nickel.

“The mineral potential is very high based on the results we have so far,” GEOMAP chief geologist Dr John Aspden was quoted as saying. “Eight mining companies, including Barrick, BHP and Rio Tinto have bought the data which is strategic information needed to mine the resources.”

EU acting head of delegation Dr Ray Beese said the project was to help the PNG government identify the mineral potential of the country.

In a news article in January 2010 written [PDF] by journalist Mohammad Bashir, geologist Jerry Barry is quoted as claiming he estimates the Ramu Nickel mine is worth more like $US34 billion and not $US1.7 billion the mine’s 85% ownership was reputedly sold to foreign owners for, by the PNG government.

On the 4th of February 2010 the website Ramu Mine Watch claimed [PDF] The Lihir Gold Mine profited by US$500 million in one year alone yet paid no taxes to Papua New Guinea. “The Ramu Nickel operation which is owned and operated by the Chinese will dwarf the Lihir gold mining operation in its size but all the signs are that it will be an even bigger financial disaster for Papua New Guinea”, the article said.

In an article by Probe International dated 11th of May 2010, it repeated a claim by African leaders that “the African continent lagged behind most other parts of the world when it comes to tax collection.”

African Development Bank President Kaberuka is quoted as saying, “Tax to GDP percentage in Africa is still the lowest at only 7 per cent.”

The Probe article also highlights “Other leaders in the developing world have made similar remarks. Late last year, Pakistan’s Federal Minister for Finance and Revenues Shaukat Tareen admitted that if the government fixed the nation’s broken tax system, it would not be forced to accept foreign aid from Western countries.”

Finally the Probe reports says:”Their remarks also echo those of Dambisa Moyo, the former Goldman Sachs economist and author of the last year’s best-selling book “Dead Aid”. Moyo argued that foreign aid is not only ineffective in promoting development, it is an impediment to it. In regards to taxation, she said that foreign aid displaces domestic revenue from taxation-and does so with terrible results.

“Foreign aid programmes, which tend to lack accountability and checks and balances, act as substitutes for tax revenues,” she wrote. “The tax receipts this releases are then diverted to unproductive and often wasteful purposes rather than productive public expenditure (education, health infrastructure) for which they were ostensibly intended.”

The breakdown of the tax system, Moyo wrote, can have serious political ramifications, as “the absence of taxation leads to a breakdown in natural checks and balances between the government and its people.”

So where does that leave the people of Papua New Guinea and their taxation system?

Sadly lacking for want of government scrutiny and at the apparent mercy of the impact of overseas aid, one would assume.

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Categories: Foreign Aid

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