Cook Islands: Ministry of Finance

Cook Islands Ministry of Finance News

Order in Executive Council authorises changes in expenditure for 2014/15

In line with Article 70 (3) (b) of the Cook Islands Constitution an Order in Executive Council was passed to authorise the modification of spending in some areas. 

Additional spending of $1.688 million has been approved in 2014/15. This has been offset by $1.6 million in savings which will be sequestered from the underwrite of the long haul flights to Los Angeles and Sydney.  An additional $3.5 million is estimated to be received in 2014/15 from fishing activities. 

A final estimated outcome for the 2014/15 Budget will be provided at the time of presenting the 2015/16 Budget, a preliminary unaudited actual outcome for 2014/15 will be provided in the June 2015 Quarterly Financial Statement.

Approved Additional Expenditure for 2014/15

Table 1 outlines the budgetary impact of the outcome additional expenditure in 2014/15 through to 2017/18. The majority of spending initiatives will not have an ongoing impact on expenditure baselines. Details of additional spending are provided at Table 1.

 

Table 1 – Additional Expenditure 2014/15 to 2017/18  

Expenditures Decisions

2014/15

2015/16

2016/17

2017/18

Production of new circulating currency

1,010

0

0

0

Social Impact Fund Spending from 2014/15

143

0

0

0

Seabed Mining Advisor Salary

25

25

0

0

Purchase of Old Cook Islands Coins

0

1,670

0

0

Purchase of New Zealand Coins

0

1,125

0

0

Transportation of old coins to New Zealand

0

50

0

0

Civil List (Ongoing Component QR)

120

25

25

25

Security Costs Associated with Schools

250

0

0

0

Banking System Report

50

0

0

0

Increase Contingency Fund

90

0

0

0

Total

1,688

2,870

25

25

Production of New Circulating Currency

In previous years the costs for the production of circulating coins were not appropriated.   Revenues from circulating currency were reported on a net basis (i.e. Gross Revenue less Gross Expenditure).

Circulating coins from New Zealand have been purchased from the RBNZ (at face value) depending on the needs of local Banks and sold (at face value) to the banks.  The costs of transport were offset by gains which were made on the minting of Cook Islands circulating currency.   In previous years this has been reported as net revenue (the net of the transaction of production and sale).

The Currency Act 86/87 stipulates that an appropriation is required for the purchase of currency.  In recognition of the requirements of the Currency Act MFEM has modified its practice and will now report on gross revenues and expenditures associated with the production of circulating currency.

The Cook Islands have contracted the Royal Australian Mint to produce approximately 4 million coins at an approximate cost of $1.010 million (AUD 0.978 million), the face value of those coins is around $4.760 million.  

Other costs will be incurred, including the purchase of old Cook Islands circulating currency and New Zealand coins (which will then be resold back to the RBNZ). 

The estimates on circulating currency are conservatively based it is unlikely that there would be more than $1.67 million worth of Cook Islands coins circulating in the economy, these figures are based on what has been historically minted. 

Table 2 and 3 outline the total expenditure and revenue which are expected over the period 2014/15 to 2017/18.

 

Table 2 – Proceeds from Circulating Currency 

Cost of Production New Coins

1.009

Purchase of Cook Islands Coins

1.670

Purchase of New Zealand Coins from Local Banks

1.375

Transportation to New Zealand

0.050

Total Cost

4.104

Sale of New Zealand Coins to the RBNZ

1.375

Sale of new Cook Islands Coins to local banks

4.760

Proceeds from Old Cook Islands Coins

0.135

Total Income

6.270

Net Seiniorage Revenue

2.166

 

Table 3 – Estimated Impact of Circulating Currency Transactions on the Budget ($m) 

 

2014/15

2015/16

2016/17

2017/18

Revenue

       

Sale of Cook Islands Currency

-

3.142

0.809

0.809

Sale of New Zealand Currency

-

1.125

0.125

0.125

Proceeds from the sale of Melted Coins

-

0.135

-

-

Total Revenue

0

4.402

0.934

0.934

Expenditure

       

Purchase of Cook Islands Coins

-

1.67

-

-

Circulating Currency Purchase

1.01

-

-

-

Transport of NZ Currency

-

0.05

-

-

Purchase of New Zealand Currency

-

1.125

0.125

0.125

Total Expenditure

1.01

2.845

0.125

0.125

Net Balance

-1.01

1.557

0.809

0.809

 Further details on the process of the introduction of new coins will be announced shortly.

Increased Funds for the Civil List

Currently $1.825 million has been spent out of the $2.374 million budgeted for the Civil List. Of the amount spent to date, $117,000 has been spent on local travel and $142,000 on overseas travel.   The Civil List has come under some additional pressure due to the requirement to pay final entitlements to some MP’s who were not re-elected and a modest increase in the remuneration package for the Queen’s Representative, the latter increase an ongoing expense.

Banking System report

Cabinet has approved the establishment of a Committee consisting of the Financial Secretary, the Financial Supervisory Commissioner and the CEO of the BCI to investigate the possibilities of the Cook Islands joining the New Zealand payments system.

Understanding whether the Cook Islands is able to join the New Zealand payments system and conducting settlement and exchange in New Zealand requires a deeper understanding of the issues required. The Committee will be using this report to ascertain whether: 

  • The BCI can obtain an Exchange Settlement Account System ("ESAS") account with the Reserve Bank of New Zealand.
  • The BCI can (or should) become a registered New Zealand bank.
  • In the case that the BCI cannot become a registered New Zealand bank what things it can do to join the payments system.

The Tender is now available and can be accessed on the Cook Islands procurement website, www.procurement.gov.ck

Increase in the Contingency Fund

The operational contingency fund was $0.1 million to cover off on unplanned and urgent requirements as they arose. Until now $75,000 of the fund has been spent, of this amount, $30,000 was provided to the Cook Islands National Council of Women for their conference and a further $15,000 as an emergency fuel purchase for the Island of Rakahanga when supplies were desperately low.

Social Impact Fund

In 2013/14 funds committed from the Social Impact Fund were not actually expended by the Ministry of Internal Affairs.  Standard cash flow processes meant that these funds were swept in at the end of the financial year and not available to spent in 2014/15.    Commitments have been entered into and remain and these expenditures which were incurred last year will now be covered off by these additional funds, this is a one off expenditure.

 Seabed Minerals Advisor

The Government of the Cook Islands is obliged to cover the component of the salary provided to an adviser in the Seabed Mining Authority which is predominantly covered by the Commonwealth Secretariat, this will be at a cost of $50,000 over two years.

Security for Schools

The Government has required that the Cook Islands Investment Corporation to maintain the responsibility for the security of school buildings and related properties from 1 July 2015. No appropriation was provided for the extra cost of physical school security for 2014/15. This extra money covers off security services for the year 2014/15.

 

Global Forum Phase 2 Peer Review

A positive Phase 2 Peer Review reinforces the strength of the Cook Islands’ regulatory environment and commitment to meeting its international obligations.  The Global Forum on Transparency and Exchange of Information for Tax Purposes has just released its report on the Cook Islands titled “Peer Review Report Phase 2 Implementation of the Standard in Practice—Cook Islands”.  The report is the result of months of research and consultation by the Peer Review assessment team with stakeholders in the Cook Islands.  The process was led locally by Andrew Haigh of the Revenue Management Division of the Ministry of Finance and Economic Management, Paul Heckles of the Financial Supervisory Commission, and Jenner Davis of the Financial Services Development Authority.
 
“The positive report reflects all of the work of the Cook Islands in meeting its exchange of information obligations and modernising its laws in this area,” says Andrew Haigh.  The Cook Islands has 19 Tax Information Exchange Agreements in place and continues to develop more.  The purpose of this Phase 2 Peer Review was to assess how the Cook Islands exchanges information for tax purposes in practice, using its network of tax information exchange agreements.  Amendments to the Income Tax Act, made in 2011, set out the process by which such requests are to be handled.
 
Phase 2 involved a visit to the Cook Islands by a group of assessors from both the Global Forum Secretariat and other jurisdictions.  The assessors reviewed any legislative developments since the country’s Phase 1 Review (2012) and focused on the timeliness of  exchanges of information and effectiveness of the systems for the monitoring and enforcement of the Cook Islands’ exchange obligations.  Paul Heckles says, “This is another example of the Cook Islands being independently assessed against important international standards and being found well up to the mark.”  It is expected that the Cook Islands will be further reviewed (Phase 3) in a few years time to ensure that the standards are maintained.
 
Ten Elements comprised the Phase 2 assessment including: ownership information, accounting records, banking information, powers of the competent authority to request information, evaluations of the tax information exchange agreements as well as how effectively information is exchanged in practice.  The Cook Islands received 8 “Compliant” ratings, which are the highest ranking, and 2 “Largely compliant” ratings.
 
With respect to the two elements receiving the largely compliant rating, Jenner Davis says that these are easily fixable.  “One element was rated lower due to the relatively low number of exchange of information requests received by the Cook Islands and this should increase over time, and with further requests, a compliant rating should be issued.  The other element only requires some minor amendments to our international legislation. For example, the Foundations Act requires some penalty provisions to be inserted for non-compliance.”
 
Andrew Haigh, who represented the Cook Islands at the recent Global Forum Peer Review Group meeting in Paris where the Report was ratified, said, "The process has been a lot of work for a jurisdiction as small as the Cook Islands but it is great to receive another positive report reinforcing the strength of our regulatory regime".  Minister of Finance, the Honourable Mark Brown, was pleased to note that the Global Forum's webpage stated in the Report's Key Findings that "the Cook Islands has answered all requests for information from treaty partners in full and timely manner and peers are very satisfied with the Cook Islands as an exchange of information partner."
 
The Executive Summary of the Report can be found at www.mfem.gov.ck/exchange-of-information or for the full Report visit http://www.oecd.org/tax/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews-cook-islands-2015-9789264231450-en.htm. 
 
 
[End]
 

Quarterly Financial Statement for December 2014

The Quarterly Financial Statement for December 2014 is now available on the MFEM website.  For the December Quarter the net operating balance of the General Government Sector as at 31 December 2014 was a surplus of $8.5 million, made up of: 

  • Operating revenue of $65.9 million; and
  • Operating expenditure of $57.4 million. 

The overall fiscal balance which excludes theeffectsof depreciation which are contained in operating expenditure, but includes capital expenditure was a surplus of $6 million. 

Total revenue collections for the quarter ending December 2014/15 were slightly higher than the Budget estimate and were mainly attributable to higher than estimated tax and fishingrevenues. 

Total operating expenses for the quarter ending December 2014/15 were lower than the Budget estimate and were mainly attributable to lower levels of spending by Agencies, the underwrite of the long haul Sydney (cost to December $1.42 million) and Los Angeles (Cost to December $3.05 million) routes and the TOA Apex Guarantee.  Welfare payments were also below budget by 9 per cent, however, timing issues with the increase in the rate of the pension for those aged 70 and over of $15 a month will see this expenditure come back towards the budget estimate. 

Whilst pleased with the positive state of the accounts Minister for Finance, the Honourable Mark Brown pointed out that there were some considerable expenditures to go through.  

“It is positive to see these surpluses coming through, however I am confident that we will be in surplus for the 2014/15 year but not at these sorts of amounts that we have seen for December.  We have expenditure associated with a number of infrastructure activities coming through, such as Project City and also the increase we gave to pensioners will also bring that number down.” 

Minister Brown noted in particular that the performance of the underwrite to date was positive. “The underwrite is improving, with the oil prices beginning to factor into the equation, and we are hopeful that trend will continue on, additionally spending on the Toa guarantee were lower as well.” 

Gross borrowings of the Crown were $94.179 million, net borrowings of the General Government Sector (excluding loan reserves and borrowings by SOEs) were $51.358 million.  The net cash reserve which is essentially unencumbered increased by $0.26 million since last quarter to a total of $16.218 million. 

As at 31 December 2014 the Crown held $52.4 million in cash which was held in various term deposits, against this amount were $36.2 million of commitments, leaving a balance of $16.2 million. 

 

Table 1 Overall Budget Balance 

2013/14

Actual

('000)

2014/15

Budget

('000)

2014/15

Actual

('000)

             Variance

 

('000)                %

59,530

Operating Revenue

65,078

65,934

856

1

54,762

Operating Expenditure

62,460

57,409

(5,051)

(8)

4,768

Net Operating Balance

2,618

8,525

(5,907)

(226)

547

Add CrownDepreciation

1,460

1,460

-

-

862

Add Ministry Depreciation

1,298

1,054

(244)

(19)

436

Add Pa Enua Depreciation

497

439

(58)

(12)

2,375

Less Capital Expenditure - CI Govt Funded

10,917

5,479

(5,438)

(50)

4,238

Fiscal Balance

(5,044)

5,999

(11,043)

219

 

 Table 2 Total Gross Borrowings

 

(‘000)

   Total Gross Borrowings

94,403

      Loan Reserve

16,866

   Net Borrowing by the Crown

77,537

      Avatiu Port Development

24,122

      Airport Authority

2,057

  Total Net Borrowings by the Crown

51,358

 

 [End ]

Cook Islands' New Circulating Coins (Press Release 20150302)

 

The Minister of Finance, the Hon Mark Brown, will shortly be arriving in Australia to officially strike the Cook Islands’ new circulating coins to be released later this year.

In August 2013, Minister Brown announced that the Government will launch a set of new coins to celebrate the 50th anniversary of Cook Islands self government on 4 August 2015.

On 4 March 2015, Minister Brown will officially start production of each of the six denominations of the Cook Islands’ new coins in a ceremony at the Royal Australian Mint in Canberra.

Minister Brown will be accompanied by the Secretary of the Ministry of Finance and Economic Management (MFEM) Mr Richard Neves. MFEM will be responsible for delivering the Cook Islands’ coinage reform and managing the process of distributing new coins and withdrawing old coins from circulation.

“From August this year, Cook Islanders will have shining new coins with much-loved Cook Islands designs that they can use every day with pride,” said Minister Brown.

The new coins will be smaller, lighter and made of modern materials.

There will be six new coins: 10 cents, 20 cents, 50 cents, $1, $2 and $5.

The 10 cent, 20 cent and 50 cent coins will be made of nickel plated steel and will be silver in colour.

The $1, $2 and $5 coins will be made of aluminium bronze and will be gold in colour.

The obverse of all coins will feature the Ian Rank-Broadley effigy of Her Majesty Queen Elizabeth II.

The reverse designs of most existing coins will be retained. A new look will be introduced for the $5 coin which will feature a Vaka.

All coin designs will be released in conjunction with a public awareness campaign to be launched mid-year. More information will be provided regarding the public awareness campaign closer to the time of the official launch.


[END]

Signing of TIEA between Cook Islands & the Czech Republic

Earlier this month the Prime Minister, the Honourable Henry Puna signed the Cook Islands' 19th Tax Information Exchange Agreement (“TIEA”) with the Czech Republic in Auckland. This signing, in addition to the news that Italy have recently ratified our TIEA with them, signify further progress by the Cook Islands in meeting its international tax obligations.

The signings were an important step for the Cook Islands to demonstrate its international cooperation on tax matters and to the principles of transparency and effective exchange of information. The entering into of this agreement is further evidence of the Cook Islands’ commitment to the OECD’s efforts in creating a level playing field in the international arena, encompassing the principals of transparency and effective exchange of information for tax purposes.

This signing makes a total of 19 TIEAs entered into by the Cook Islands, and demonstrates that the Cook Islands has become a leading jurisdiction in the fight against tax evasion. The TIEAs allow for these countries and the Cook Islands to request information from each other where a specific taxpayer is under investigation, and where there is reason to believe that relevant information is held in the other country.

Currently the Cook Islands is undergoing a Phase 2 Peer Review by the Global Forum on Transparency and Exchange of Information for Tax Purposes, which we expect will result in a positive report.


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