The Hon. Rama Sithanen, Minister of Finance and Deputy Prime Minister, delivered a flat Budget speech this evening with an endless list of micro initiatives and projects, most of which will probably never see the light of day. Nevertheless, targeted measures were proposed to address hard core poverty, critical for the social stability of the country.
At PricewaterhouseCoopers we have repeatedly pushed for the opening up of the country to foreign investors and expatriate personnel, simplification of procedures and improved efficiency in public administration. It is evident that the real efforts of the past 3 years are delivering results with the economy’s growth rate (5.5%) and private investment (21% of GDP) picking up. Growth has led to buoyancy in Government revenues with an expected rise of 18% in revenues next year – 12% excluding foreign grants.
The Minister of Finance clearly has the forthcoming elections in mind with the PRB being paid entirely this year (instead of the initial 75/25 split over 2008 and 2009) and the deficit brought from 3.8% to a mere 3.3%. The increase in Government spending in line with inflation has been forgotten with expenditure growing at 15%!
Inflation is the real beast and if not controlled its effects on the economy will be disastrous (8.8% from 10.7%). We do not believe the Minister has done enough to bottle this threat.
The approach on certain issues, such as investment in education, is nevertheless welcome as it avoids the pitfalls of direct social spending and addresses one on the fundamental causes of poverty.
Efforts in respect of targeted aid for education are however eclipsed by the cost of universal subsidies on rice, flour and gas (up from Rs700m to Rs1.3bn!). When will one be brave enough to put an end to this?
The reduction of duties on some foodstuff will clearly help the poor by bringing down prices but will also put renewed pressure on local manufacturers as imported products will be more competitive. Of particular concern is the elimination of duty on chicken, a sizeable industry in Mauritius.
Infrastructure was again at the forefront of the Minister’s thoughts but we have heard so much and seen so little on that front that we can only doubt the Government’s willingness to achieve its objectives. More specifically, the Minister mentioned a toll ring road around Port-Louis and a toll ‘Harbour Bridge’. Users are not asking for two alternatives. One will suffice!
The Government is also introducing measures to encourage unsolicited PPP proposals. At PricewaterhouseCoopers we have always been wary of this process and hope to see proper tender procedures introduced accordingly.
Still on PPPs, Government is planning to allow Small Independent Power Producers (SIPPs) to connect to the grid. This shall only come about if the CEB or the independent regulator offers a commercial price to operators. Experience has proved that this can be a very difficult exercise!
We welcome the fundamental change of allowing developers to start taking deposits at the start of a morcellement. Unfortunately, Land Transfer Tax was increased from 5 to 10% and from 10% to 15% on sale of projects exceeding Rs50M, for no apparent reason. Anyone in this business will know that Government is already the main beneficiary of any morcellement and yet it is taking some more from developers. How this will apply to already approved developments remains to be seen.
To conclude, we feel the Minister has erred from his objectives set in 2006. Faced with exceptional liquidity, he opted to give most of it away rather than grabbing this unique opportunity to further reduce the budget deficit and bring down inflation. Elections cannot be too far away! | 