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Budget 2008 Highlights

A Guide to the Budget

10 December 2007

Copied from a pamphlet published by Budget Analysis Group, UNDP and the Parliament of Timor-Leste. La'o Hamutuk has added links and changed misspelling and formatting.

Click here for more information on the budget as passed, and here to download the entire 1.4 MB document.

This pamphlet was prepared before Parliament amended the budget, so some figures are slightly outdated.

THE GENERAL BUDGET OF THE STATE

The total budget proposed for 2008 is US$ 347.3 million. By category of expenditure, the budgets are:

US$ 48.0 million

salaries and wages

US$ 143.5 million 

goods and services

US$ 23.9 million 

minor capital

US$ 68.0 million

capital and development

US$ 63.9 million 

transfers

Total recurrent expenditures are US$ 279.3 million (80%) while capital and development expenditures are US$ 68.0 million (20%).

The estimated sustainable income from petroleum revenues for the Budget 2008 is US$ 294 million.

The General Budget of the State will be financed from the following sources:

  • Domestic revenues: US$27.0 million

  • Existing cash reserves: US$27.0 million

  • Transfer from Petroleum Fund: US$293.3 million

THE COMBINED SOURCES BUDGET

The total combined sources budget is US$ 537.3 million, US$347.3 million (65%) from the General Budget of the State and US$ 190.0 million (35%) funding confirmed by donors. Donors contribute a little more than 1/3 of the total combined sources budget.

The combined sources budget, shared by the various sectors:

FISCAL OUTLOOK

Total revenue is estimated at US$1.385.6 billion shared by US$1.358.6 billion from petroleum revenue and US$27.0 million from domestic revenue including revenue generated by self-funded agencies. The whole of state fiscal balance (revenue less expenditure) is estimated at US$ 1.038.3 billion.

ECONOMIC OUTLOOK

  • The non-oil economy is projected at 6.5% In 2008 caused mainly by the increase in public spending from the large government budget and improved budget execution.

  • Growth in agriculture and investment in the private sector will remain very modest.

  • Inflation went down to 7.2% in September 2007 from a peak of 17% in February 2007. It is expected to further decrease as the impact of supply stocks subside.

BUDGET 2008 PRIORITIES

  • Resolving issues underlying national poverty (e.g., IDPs).

  • Reform of the civil service administration.

  • Focus on strong economic growth to reduce poverty.

  • Develop a new national development plan (Second National Development Plan).

  • Support growth of the private sector and investment to create jobs.

  • Support for the veterans and vulnerable groups.

  • Re-establishment of the security across the country.

  • Increase provision of services in health, education, agricultural extension and support, social welfare and human resources development.

ADMINISTRATIVE REFORM AND STABILIZATION

2008 will be a continuation of reform (started from the transition period July to September 2007) to guarantee the return of Timor-Leste to the path of development and to meet the Millennium Development Goals (MDGs). The focus will be on building the capacity of the Government to deliver services to the people.

A new career regime for the civil service will be implemented in 2008. This regime will promote efficiency and provide opportunities for career development and progression.

Government ministries and services will be regularly audited and clear administrative policies will be developed aimed to ensure that funds are spent transparently and represent good value for money.

Financial reports and information made more readily (sic)

TAX REFORM

The Government will introduce reforms to the taxation system in 2008. The reform will lead to improving Timor-Leste's competitiveness in the region.

As a result of the implementation of the tax reform, domestic tax revenues are expected to decline by 50%. Some of the reforms are as follows:

Wages income tax

  • Resident taxpayers: taxable monthly wages - the first US$500 will not be subject to tax; wages above US$500 will be taxed at 10%.

  • Non-resident taxpayers: 10% on all amounts of taxable wages.

Withholding tax

Dividends and interest will no longer be subject to with-holding tax, but must be included in gross income to calculate a taxpayer's taxable income.

Service tax

Rate of service tax will be cut from 12% to 5%, and the provision of motor vehicle rental services will no longer be subject to service tax.

Income tax

The rate of income tax for resident and non-resident natu­ral persons (individuals) with a permanent establishment in Timor-Leste, will be 0% for the first US$6,000 of taxable income and then 10% on the excess.

For all other taxpayers (non-individuals), the rate will be 10% on all taxable income. 1% minimum income tax will no longer be payable.
[LH comment: this refers to taxes on domestic and foreign businesses, reduced from the current rate of 30%.]

INVESTMENT STRATEGY OF THE PETROLEUM FUND

According to Article 14.3 of the Petroleum Fund Law, the range of instruments included as qualifying instruments in the Law shall be reviewed by the Government, and approved by the Parliament, at the end of the first five (5) years of the Petroleum Fund existence, having regard to the size of the Petroleum Fund and the level of institutional capacity. The Government will start this review process in 2008.

PUBLIC TRANSFERS

An amount of US$63.9 million is budgeted for Public Transfers to provide personal benefits payments to veterans. The Government will also provide public grants to the church, NGOs and civil society groups who will help implement government programs in areas such as education, sport, training and research. Some of the activities which will be funded from these transfers are:

  • Assistance to religious and civil society groups;

  • Support to IDPs;

  • Resolution of the situation of the petitioners;

  • Secretary of State for Youth and Sport;

  • Youth Arts Development Fund;

  • Youth Sports Development Fund;

  • Secretary of State for Energy Policy;

  • Alternative Energy Fund;

  • Support for other Professional Training;

  • Pilot Project for Community Employment;

  • Pensions for Veterans;

  • Pensions for Former Office Holders;

  • School Grants Programme;

  • Transfers for Territory Administration;

  • Funds to support cooperatives;

  • Support for the elderly;

  • Support for National Disasters;

  • Agricultural Community Development Fund;

  • Support for Political Parties.

By Ministry, the public transfers are:

 

US$'000

Office of the Prime Minister

 25,000

Ministry of Finance - whole of Government

16,541

Ministry for Social Solidarity

9,700

Ministry for Economy and Development

2,550

Ministry of Education 

2,500

Ministry of State Administration 

2,286

Ministry of Agriculture, Forests and Fisheries

2,000

Secretary of State for Employment and Vocational Training

1,250

Commission of National Elections 

1,000

Secretary of State for Youth and Sport

800

Secretary of State for Energy Policy

251

GENDER EQUALITY

Through the Secretary of State for Gender Equality, the Government will:

  • Develop a policy for women in 2008;

  • Promote mechanisms that will encourage the participation of women in political activities and address domestic violence;

  • Develop gender training and education for public servants;

  • Adopt gender approach to the formulation of the Second National Development Plan.

CAPITAL EXPENDITURE

The capital development programme of 2008 (US$68.0 million) is a modest but realistic plan. Capital expenditure in 2006-2007 was US$11.6 million. Government expects to execute a major part of the budget of US$68.0 million for 2008 as well as the carryovers from FY 2006-2007 and previous years.
 

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua dos Martires da Patria, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
email: 
info@laohamutuk.org    Web: http://www.laohamutuk.org    Blog: laohamutuk.blogspot.com