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AfricaMoney | October 18, 2017

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Budget 2014 expert speak: “Don’t put all eggs in African basket”

Budget 2014 expert speak: “Don’t put all eggs in African basket”

Mauritian economist Philip Lam gives you his forthright views on tax incentives, housing, unemployment, sector focus, Africa strategy, and most importantly, the implementation of the budget he openly describes as ‘ambitious’

AfricaMoney brings you candid insights by noted Mauritian economist Philip Lam into Budget 2014. Unravelling the maze of numbers and going into the heart of proposed policies, our no-nonsense expert tells you exactly what the budget means for you. Our seasoned economist gives his forthright views on tax incentives, housing, unemployment, sector focus, Africa strategy, and most importantly, the implementation of the budget he openly describes as ‘ambitious’.

Edited excerpts from an interview:

Of the two pillars of Budget 2014, invigorating growth and investment, and building a more inclusive society, towards which one do you think the scales are tilted?

There is more emphasis on the first pillar and rightly so as national wealth can only be shared after it is produced. Simply put, you cannot share what you do not have.

Please tell us which single measure proposed under the theme ‘invigorating growth and investment’ do you think will have maximum impact, and why.

The “Build Mauritius” plan will have maximum impact provided the bottlenecks that hamper implementation of infrastructural projects are dealt with. The plan involves substantial outlays (about 20 percent of forecast budget expenditure in 2014) which will generate multiplier effects economy-wide.

Which policy proposed by the government under the theme of ‘Building a modern, caring and inclusive society’ will, in your view, contribute most to achieving that objective?

Health expenditure will be a major contributor towards achieving this objective. Indeed, with the gradual ageing of the Mauritian population, health-related problems will affect an increasing share of the population and national budget expenditure on health will help the average Mauritian enjoy a reasonable level of health care.

Unemployment rate is creeping up (8.1% in 2012 to 8.3% in 2013). Do you feel the budget adequately addresses job creation and employment generation issues?

Not sufficiently as the critical issue of human capital formation has not been properly addressed. For example, for the new economic hubs (Aviation, Marine Services and Petroleum) that have been proposed, not much has been put forward in terms of manpower training requirements. This shortcoming will only exacerbate the problem of labour market mismatch.

Which sector of the economy do you feel has been given a step-motherly treatment by Budget 2014 and why do you feel such sector deserves greater investment/other policy stimulus?

More must be done for the agricultural/agro-industrial sector as Mauritius spends a lot of precious foreign exchange on food imports. This will not only lead to foreign exchange savings but also to job creation at a time of rising unemployment.

Do you feel the budget gives sufficient thrust to the purchasing power of the common man through concessions on both indirect tax (VAT abolished on motorcycles from 201 to 250 cc, removal of VAT on basic medical equipment and VAT moved to zero-rated category on food items of regular consumption, etc) and direct tax (income tax threshold across segments increased by Rs 5000)? Which is the measure you would single out as having maximum impact and why?

Unfortunately, I feel that none of the above measures would make much of an impact on the common man.

Will streamlining land transfer tax and property registration rates from a range of 5-10%, to 5%, really translate into tangible benefits to first time buyers? Is there any measure of the budget that you feel gives sufficient consideration to home ownership aspirations of Mauritians?

First time home buyers may benefit from these measures. However, these measures may stimulate demand, lead to rising prices, thus nullifying the effect of the measures themselves. The proposals for middle-class families are welcome but here again they may lead to rising demand and higher property prices. One must also bear in mind the experience in the US where measures designed to encourage house purchases by the underprivileged led to a housing bubble.

Do you feel the Bus replacement mechanism proposal – to increase commuter safety by introducing 200 semi-low floor buses annually, while placing a strain on commuter spending with a proposed levy of Rs 1 per litre on petroleum products – is counterintuitive? Or, is it acceptable to privilege safety over spending capacity?

Quality comes at a price. However, the use of the funds raised must be carefully monitored to ensure their proper use.

Do you feel the Africa strategy adequately addresses concerns over lack of fresh investments into Mauritius in the backdrop of tax treaty issues with India and South Africa as well as slower-than-expected recovery in EU? Does a Mauritius-Africa fund of Rs 500 mn over 5 years do justice to the perceived potential of African emerging economies to power FDI into the island?

Mauritius should develop a global strategy to take advantage of the changing global economic landscape. We should not put all our eggs in the “African basket” but try to capitalise on the growing Asian markets, where according to Kishore Mahbubani of the LeeKuan Yu School of Public Policy the number of middle-class residents is expected to increase from about 500 million to 1.75 billion by 2020.

The Rs 500 million fund is a positive development but equity participation in African enterprises requires that projects are properly appraised, bearing in mind the sometimes unstable environment in Africa as exemplified by the recent terrorist attack in Kenya.

Overall, does the budget meet your expectations? Any aspirational measures you have for your dream economy that would like to share with us?

As the budget already contains so many measures, what is needed is not additional measures but a proper mechanism to ensure implementation. We need to adopt the UK system whereby the Chancellor of the Exchequer (the equivalent of our Minister of Finance) presents a mid-term review of the budget before Parliament to state which measures have been implemented, which ones will be implemented before the end of the financial year and which measures will not be carried out and justifying his decision. This will help ensure that the budgetary measures are implemented as far as possible.

If you could describe the budget in one word, what would it be?

Ambitious

By Marie Anne-Julie Quenette, reporting for AfricaMoney

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