The Cook Islands government will be reintroducing a withholding tax on interest accrued in bank accounts to cover two bills that have exceeded budget appropriations by about 1.6 million US dollars.
The government's allocated budget for the subsidy it pays for Air New Zealand flights from Los Angeles to Rarotonga fell significantly short of the final bill.
In addition, the government has to shoulder losses of more than 160 thousand US dollars accrued by the company, Toa Petroleum.
The Finance Minister Mark Brown says a withholding tax was removed over ten years ago to encourage people to make larger bank deposits but he says the government has little choice but to restore it.
"I didn't want to jeopardise a number of ministry programmes that we have already approved and that have gone through a thorough debate and budget process. The next best thing to do was to have a look at some form of revenue generation and this one would be the easiest to apply. And basically banks will be asked to deduct the 15 percent on any interest they accrue and that amount we expect will be paid to treasury every month."
Mark Brown says he is planning to reintroduce the tax in September and is hoping it can generate more than 800 thousand US dollars within a year.