Canberra, 8 July 1969
Confidential
Grant for Papua and New Guinea Administration in 1969/70
This submission seeks approval for a Commonwealth grant of $97 million to the Papua and New Guinea Administration in 1969/70. The grant for 1968/69 was $87 million.
2. The financial year 1969/70 is the second year in the five-year Development Programme, which has been endorsed by the Government as a basis for planning. (Decision 354(M) of 24/7 /68).1 The proposed grant is needed to supplement Territory revenue and obtain the total level of finance required by the Administration to achieve the basic objectives of the Development Programme. These are to increase production and exports, to foster greater indigenous participation, to stimulate private investment and to provide adequate secondary and technical education whilst restraining as much as practicable expenditure on social and administrative services.
3. The key figures for proposed government expenditure in Papua and New Guinea in 1969/70 are compared with the approximate results for 1968/69 in Attachment ‘A’.2 The important points to note are:
(a) the estimate of Administration expenditure for 1969/70 ($172M) is of the order envisaged when the five-year programme was prepared;
(b) the proposed grant for 1969/70 ($97M) will finance a smaller proportion (56.4%) of administration expenditure than did the grant for 1968/69 (58. 7%);
(c) total expenditure financed by the Commonwealth is expected to be a smaller proportion of total government expenditure in the Territory in 1969/70 (61.5%) than it was in 1968/69 (64.6%).
Revenue
4. The revenue estimate of $63.8M includes $1.5M from new measures and $2.2M expected to result from the mining activities of C.R.A. on Bougainville.
5. A taxation consultant recommended by the I.M.F. was appointed in 1969 to assess the taxable capacity of the Territory and to suggest changes to the existing taxation system which would increase its effectiveness in the conditions that exist in Papua and New Guinea. The consultant’s preliminary report has not yet been received. His recommendations are not expected to have any major effect in 1969/70.
Loans
6. In 1968/69 receipts from Territory public loans from Territory sources were approximately $7.0M. For 1969/70 the Loan Council has agreed that the Territory Administration have access to limited private loan raising on the Australian market, subject to continuation of the present Commonwealth scrutiny both as to the amount and the terms of such borrowing. It is expected that a loan raising programme of $10M from Territory and Australian sources can be realised in 1969/70. In addition, $1.2M is expected from international sources (I.B.R.D. and I.D.A.).
Expenditure
Functional classification
7. A functional classification of the proposed expenditure—see Attachment ‘B’3—shows an increase from 13.4% to 14.1% in the proportion allocated to the commodity-producing sector and an increase for economic overheads from 19.3% to 21.1 %. The total proportion to be spent on economic activities rises from 32.7% to 35.2%; the proportion to be spent on social services declines from 34.4% to 33.5%. This trend reflects the emphasis which is given to economic development.
8. The principal elements in the proposed increase of $23.7M in the 1969/70 Administration expenditure are set out in Attachment ‘C’.4 The increase of $23.7M or 16% compares with an average annual increase of about 13% over the preceding three years. This additional expenditure is required to give effect to the Government’s policy of advancing the economic, political and social status of the people of the Territory.
Salaries and wages
9. The Development Programme provides for a net increase of 1450 overseas staff over the five years of the programme. The net gain in overseas staff in 1968/69 was about 320 compared with 300 in 1967/68. The estimates for salaries and wages increases from $49.6M in 1968/69 to $54.5M in 1969/70 and this includes a provision for a net gain of 430 overseas staff in 1969/70. For some time yet both the overseas and local officer components of the Public Service must continue to grow in order to progress towards policy objectives and to obtain effective administration. At the same time positive action is being taken and progress in ‘localisation’ of the Public Service is being achieved. Since 1968 overseas officers have not been recruited to positions of base grade clerk.
Administrative expenses
10. Associated with the growth in the Public Service is an increase of $1.1M to $10.8M in administrative expenses, i.e., duty travel, leave travel, motor transport, postal and electricity charges, printing and incidentals. This expenditure is essential for the effective working of the Public Service.
Capital works and services
11. The provision for capital works for 1969/70 is $25.5M. Although this is as much as 20% more than was actually spent on works ($21.25M) in 1968/69, the Territory’s works authorities consider that available works capacity can accomplish a cash expenditure of this order. In view of the urgent need for additional capital works more funds will be sought for the Works Programme if it is found that available works capacity can accomplish a cash expenditure greater than now programmed ($25.5M).
Higher education
12. The University of Papua and New Guinea and the Institute of Higher Technical Education are still being established. In 1969/70 the provision for these institutions is $6.2M ($3.8M current and $2.4M capital) compared with $4.7M in 1968/69. The proposed provision is in accordance with recommendations by Sir Leslie Melville who, at the Minister’s request, examined the expenditure proposals of both these institutions. The provision of $6.2M will enable both institutions to progress towards approved enrolment targets.
Telecommunications
13. There is a four-year telecommunications development programme to cost in total about $14M. This development of telecommunications in the Territory will require an increased provision of $1.4M in 1969/70, of which $0.8M will be financed by a World Bank loan to the Papua and New Guinea Administration.
Development Bank
14. An amount of $3.5M is included in the Draft Estimates for the Papua and New Guinea Development Bank—$3M is additional capital and $0.5M is allocated from an I.D.A. loan to the Administration for an agricultural project. This amount, together with $1.7M on hand at 30th June, 1969, will give the Bank cash resources of $5.2M in the 1969/70 financial year. The Bank’s activities are expanding and it may require more than $3.0M new capital in 1969/70.
15. It is proposed that in 1969/70 the arrangement approved by the Commonwealth Treasurer for 1967/68 and by Cabinet for 1968/69 should be continued—i.e., that the total call by the Territory on the Commonwealth Budget could be increased if the need of the Papua and New Guinea Development Bank for funds seems likely to exceed its resources and the Government considers it necessary to assist the Administration to make an additional contribution to the Bank’s capital.
C.R.A. operations at Bougainville
16. The Draft Estimates include $3.6M for the Administration’s commitments in support of the C.R.A. operations at Bougainville. This estimate is thought to be a minimum figure, and comprises $1.5M for capital works, $1.4M for land purchases and $0.7M for other expenditures. These expenditures are subject to some uncertainty because of the early stage of the C.R.A. operations.
Consideration by the Administrators Executive Council
17. This draft Territory Budget has yet to be discussed with the Administrator’s Executive Council. Final allocations within the overall amount of the expenditure estimate will need to take account of the views of the Council.
18. As decided by Cabinet on 19th July, 1967 (Decision No. 417(M)),5 the Commonwealth grant would be provided by the Government on the basis that in the event of the House of Assembly (on whose decision adoption of the Territory budget depends) seeking to vary the budget in a way unacceptable to the Government the amount of the grant and the arrangements for Australian aid would have to be reviewed.
Recommendation
19. In paragraphs 11, 14, 15 and 16, I have referred to some areas of uncertainty in the Papua and New Guinea expenditure estimates. As events might prove that more funds are needed for these purposes, and if these funds cannot be provided from savings in other expenditures or from increased revenues or loans, there might be a need later in the year to seek an addition to the grant from the Commonwealth. So far as the Development Bank is concerned, it would be desirable to be able to restate publicly as was done last year and the year before that if the Bank needs more funds in 1969/70 the Government will consider assisting the Administration to make an additional contribution towards the Bank’s capital. Subject to these comments, I recommend a grant of $97 million to the Papua and New Guinea Administration in 1969/70, the policy basis being as decided by Cabinet in July 1967 (paragraph 18 above).6
[NAA: A5868, 655]
1 See footnote 6, Document 210.
2 Not printed.
3 Not printed.
4 Not printed.
5 Document 136.
6 On 24 July, Cabinet approved a grant of $96 million for the Territory, on the basis of the decision of July 1967, and noted the possible need for .an additional grant by the Commonwealth later in the year. It also agreed that the Minister make a statement as proposed (decision no. 1159 (M), NAA: A5868, 655).