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AfricaMoney | August 16, 2017

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How the budget adds up

How the budget adds up

Mauritian Finance Minister Xavier-Luc Duval outlined a two pronged strategy of invigorating growth and investment, as well as building a modern, caring and inclusive society for Budget 2014. (Image: grandbaie.mu)

Empowerment and growth were the dual themes of the Budget 2014 session at the Mauritian Parliament today, as finance minister Xavier-Luc Duval emphasized that the financial measures listed sought to ‘empower the island economy to create a new wave of prosperity.’

Accordingly, a two pronged strategy of invigorating growth and investment, as well as building a modern, caring and inclusive society was identified as the thrust of the budget.

A path-breaking announcement of the current budget was that 9 year schooling would soon be introduced in the education system, thus making CPE exams ‘a thing of the past’.

However, even as the budget rode high on rhetoric, the numbers told a different story with higher-than-expected budget deficit dogging the island economy. The 2013 deficit is expected to climb to 3.7 percent of gross domestic product, much higher than the 2.2 percent the government was targeting.

While Duval had previously said the deficit would be higher than forecast due to a rise in public sector wages, till now, he had indicated it would be around 3 percent of GDP.

He added that the economy next year was expected to expand by 3.8 to 4 percent, up from the 3.2 percent now expected in 2013. Sectors of thrust to achieve the forecast growth rate were infrastructure (with Rs 18.4 billion to be invested in physical infrastructure in 2014), Information and Communication technology (with Rs 7 billion to be invested over the next 5 years by operators for fibre connections alone) and the sea-port sector (identified for an investment of Rs 3.2 billion in 2014).

Traditional sectors like tourism and financial services were also touched upon, with increased air access for the island economy being emphasized for a boost to the hospitality sector, while financial crimes are to be defined more stringently to ensure that institutional borrowings proliferate.

Besides, other emerging sectors for the island economy like renewable energy, the ocean economy, development of a petroleum hub and the film industry were also emphasized by Duval as areas of focus, moving forward.

The Africa strategy was also highlighted, with Duval announcing the creation of the Mauritius-Africa fund of Rs 500 million over 5 years. It was underscored that, supported by the Africa Strategy, around 60 per cent of new companies formed in the global business sector are already targeting Africa.

On the transport front, Duval unveiled a comprehensive Bus Replacement Mechanism to enable purchase of up to 200 modern, semi-low floor buses annually. However, while the common man may feel safer, his expenditure will certainly move up with a levy of one rupee per liter being announced on petroleum products to finance the Rs 1 million subsidy extended by the government.

To relieve traffic congestion, the budget dwelt on the construction of a grade separated junction over the Phoenix and Jumbo roundabouts; the construction of a bridge over Grand River North West to link Coromandel to Sorèze; and the construction of a tunnel through the Signal Mountain to Champ de Mars.

On the tax front, the finance minister declared an increase in income tax thresholds across the board by Rs 5,000.  The Mauritius Tax Payer’s Association (MTPA) had requested for an increase of Rs 10,000 so it remains to be seen how the population will react to the lower-than-expected rise in income tax thresholds.

On the property front, there is good news for the average Mauritian as land transfer tax is now to be imposed at a uniform rate of 5% vis-à-vis the earlier range of 5-10%, while land registration rates have also been aligned to the single rate of 5%. Also, in a major stimulus to global business services, the Investment Promotion (Real Estate Development Scheme) regulations have been amended to allow GBL1 Companies to purchase residential property in Mauritius under the IRS/RES schemes.

However, for non-citizens there is little cause for cheer as registration duty payable on transfer of an RES residence is being changed from a flat $25,000 to the higher amount of 5 per cent of the value, or $25,000.

To discourage consumption of products with adverse impacts on health and environment, excise duty on alcohol and tobacco has been increased by 5%, duty on energy inefficient products is extended to cover more categories of products (including air conditioners, tumble dryers and electric lamps) while a 30% excise duty stands imposed on fireworks. The budget announcements also included an increase in registration duty by 30% with immediate effect on motor vehicles except motor cycles of cylinder capacity under 250 cc.

On the positive side, to stimulate consumption of beneficial items, the prevailing 45% excise duty on motorcycles of cylinder capacity from 201 to 250 cc stands abolished, while VAT on medical, surgical, laboratory equipment, X ray films, photo plates and bio pesticides has also been ceased. Also, daily consumption items such as tea, milk, butter, cheese, curd, honey, soya, soya beans, spices, rice, sausages, ham, buttermilk, and canned/preserved meat have also been moved to the VAT exempt category. Finally, the full VAT refund scheme for agricultural machinery, equipment and tools which was introduced in 2012, has been made permanent.

In welcome news to households planning to take on loans, Duval also declared that the in duplum rule to apply to loans availed by households from 1st Jan 2014 onwards. In effect, banks have been restrained from charging ‘interest on interest’. Besides, the government will regulate penalty rates charged by banks, which will now be allowed upto a maximum of 2% per annum.

To ensure a better quality of life and meet the government’s aspiration for an inclusive society, both education and health have been adequately addressed under the Budget.

The government will be allocating Rs 14.8 billion to the education sector as a whole, representing an increase of 11.2 per cent over the amount spent in 2013. Free wifi is to be provided in all public secondary schools, free tablets are to be distributed to both form 4 and form 5 students in 2014 while an HSC pro qualification is to be adopted to better prepare Mauritian students for the working world.

To adopt an inclusive approach, the total provision for the ZEP schools programme will be increased by 30 per cent to Rs 440 million to benefit 30 schools and 9,000 children from poor families. Besides, Rs 130 million has been kept aside for the hot meal program, to be re-launched starting with ZEP schools.

On the health front, Rs 9.2 million has been sanctioned to the public health industry under the budget, while state-of-the-art facilities are planned by the Ministry of Health. These initiatives cover a capital investment of Rs 566 million for the Victoria Hospital at Quatre Bornes that will comprise six operating theatres and four new wards with a bed capacity of 120.

Also, in line with an inclusive approach, home ownership measures have been introduced for middle-income families earning less than Rs 50,000 per month. To reduce the cost of acquiring a unit, the government will reimburse VAT up to an amount of Rs 300,000 on the construction of any house or purchase of an apartment costing less than Rs 2.5 million. Besides, down payment on such home loans will be reduced to 5%, from the existing 10% charged by banks.

For the elderly, the basic retirement pension has been increased by 3.7 per cent, a rate only slightly higher than inflation. Those aged 60 to 89 will receive a monthly basic pension of Rs 3,623; those from 90 to 99 years will receive Rs 10,789 while centenarians will see their monthly pension increase from Rs 11,800 to Rs 12,300. Besides, all social aid benefits have also been increased by 3.7 per cent, again only marginally outstripping inflation.

Moreover, the budget brings cheer to football fans by sanctioning Rs 10 million to establish a ‘semi-professional football league’ to regroup all the best players in the country and reestablish the status of football as the national sport of the island nation. Besides, as much as Rs 387 million has been sanctioned to bring sports closer to the population, by building news stadiums and upgrading existing sports facilities.

On the entertainment front, the Budget announced the policy of licensing local broadcasters, mentioning that the relevant application criteria were in the process of being finalized and would be made available to those who wish to broadcast solely films, sports and entertainment programmes.

To ensure uninterrupted supply of electricity even in view of non-payment of bill, Duval declared that the CEB is now launching its pioneering prepaid meter which will allow households to pay their electricity bill much in the same way as they pay prepaid mobile phone services.

Finally, the finance minister commented on the key numbers powering the budget – an expenditure of Rs 101.3 billion to be financed with revenues of Rs 86.3 billion, with the majority (Rs 74 billion) arising from tax revenues and yielding an expected budget deficit amounting to 3.2% of the GDP. Further, government borrowing was forecast at Rs 14 billion (3.5% of the GDP) while public sector debt is expected to come down from 54.8% of the GDP at present to 54% of the GDP in 2014.

For the full budget speech, click on http://mof.gov.mu/English/Documents/Budget2014/BudgetSpeech2014.pdf

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