Chronicle of a Budget Exercise Foretold

Before proposing costly support measures in a context of strapped financial resources, the government must first ascertain whether the sector or activity being helped is viable or not

By Mrinal Roy

Despite the current blitzkrieg on national TV to extol the policy choices underpinning the 2020-21 Budget proposals, it is patently evident that some of these choices are questionable. In the light of the systemic flaws and failings of our economic model, there was a widespread expectation among the multitude for the economy to be profoundly reformed and reengineered to establish a new socio-economic order which bridges inequality, provides equal opportunities to all, assures a fair sharing of the fruits of prosperity and a better quality of life for all. People basically want their seminal aspirations which have been repeatedly thwarted since independence to be finally met.

There is a basic industriousness among the people who want a level playing field in respect of opportunities, merit based recruitment and promotion to improve their prospects and quality of life though their hard work, qualifications and competence in pursuit of their dreams of happiness. This potent force of the nation must be harnessed for the common good and not undermined by nurturing a culture of dependence on state assistance and subsidy or political patronage.

Lifeline

Without the one-off Rs 60 billion lifeline received from the Bank of Mauritius to boost up strapped government revenue caused by the Covid-19 crisis, the 2020-21 budget would not have had a leg to stand on. Yet, there is not a word about this substantial grant from the BOM representing some 37% of the total 2020-21 budget expenditure of Rs162.9 billion.

Apart from enabling the Minister of Finance to balance the budget, the Rs 60 million grant also provided him with tremendous leeway and flexibility to reform and reshape the economy to comprehensively meet the aspirations of the people. Instead, the policy choices made basically followed the same template and model used time and time again. Many of the budgetary measures proposed are simply variations and adjustments of the same elements which have formed part of the budget structure for years in the country.

As has been the case for years now, the Minister of Finance reaffirmed that the construction industry will be the engine of our recovery. Thus, more than Rs 40 billion have been allocated for various infrastructural projects including inter alia the construction of 12,000 social

housing units. As before, 34 lucrative private sector property development and smart city projects worth some Rs 62 billion have been earmarked for fast track processing and approval procedures by government.

Short-termism

The upshot is that the generous fiscal incentives amounting to billions of rupees of forfeited tax revenue granted since 2015 to promoters of smart city and real estate development projects have heavily skewed Foreign Direct Investment (FDI) away from productive economic activities into real estate activities which obtained Rs13,599 billion representing more than 89% of gross FDI flow in the country during the January to September 2019 period. Of this amount the lion share of FDI or Rs11.821 billion were invested in IRS/RES/IHS/PDS/SCS schemes (Integrated Resort Scheme/Real Estate Scheme/Invest Hotel Scheme/Property Development Scheme/Smart City Scheme). The allowed sales of a major share of these residential properties to foreigners have escalated real estate values in the country out of reach of large swathes of mainstream Mauritians. Selling property or passports or resident and occupation permits to foreigners is a desperate and shortsighted strategy to raise one-off funds.

These are short lived measures which benefit only the few who are richly endowed with land assets in prime locations, deepen inequality, have profound adverse fallouts on the fabric of society and have limited positive multiplier effect on the economy in terms of, for example, the employment of the qualified young or productive economic activities.

Among the questionable policy choices are the budget proposal to bend over backwards to facilitate the entry of foreigners into the country. Foreigners can thus obtain an Occupation Permit (OP) for an investment of a mere USD 50,000 (about Rs 2 million), bring their parents to live in Mauritius and invest in other ventures without any shareholding restriction. Non-citizens who have a residence permit would no longer require an Occupation or Work Permit to invest and work in Mauritius. OP and Residence Permit holders will be eligible to apply for a Permanent Residence Permit if they have held the permit for three consecutive years.

On brade à tour de bras. Do such questionable policies reflect the ethos and ideals on which independence was fought and obtained? Some years ago, a similar misguided policy led to the creation of foreign enclaves and the setting up of small ‘businesses’ like hairdresser’s salons in Black River/Tamarin in the West.

No wonder subsidized social housing is now also being proposed to an increasing range of income groups including 1,500 housing units for the middle-income families earning monthly income between Rs 45,000 and Rs 60,000 with government subsidizing 30% of the cost. No Mauritian, except the most vulnerable, wants to depend on state subsidy to meet his basic existential needs.

This is a major step back in the country. We should recall that despite lower income levels, the post-independence generation of cadres, teachers, civil servants and a broad spectrum of employees had the disposable income and the purchasing power required to invest in a house, a car to commute to work or go on holidays as well as bequeath assets including land to their children. In contrast, it is very difficult for a young professional of today to, for example, buy land and build a house from his savings owing principally to the significant rise in real estate values fueled by the explosion of high end real estate projects in the country. The present situation is unsustainable. There is therefore an urgent need to scuttle such decried short-termism and initiate the long overdue land reforms required.

The chimney syndrome

Instead of much needed land reforms, government is instead proposing to put some 20,000 acres of abandoned land on a land bank platform for ‘immediate use’. Let it be clearly stated. The property rights of the owners of these agricultural lands who individually own small plots of land acquired through their hard work and who have contributed for generations to the sugar industry or to assure food security in the country cannot be tampered with.

Is it not instead high time to corral the required acreage of cane lands from uneconomic sugar production to make the country with the help of the savvy entrepreneurship of planters and the farming community as self-sufficient in (preferably organic) agricultural produce and other essential food supplies as possible with the required support of greenhouse production and modern storage facilities, cold rooms and direct sale options? This is certainly a much more profitable economic activity for planters and farmers. The chimney syndrome dies hard.

Before proposing costly support measures in a context of strapped financial resources, the government must therefore first ascertain whether the sector or activity being helped is viable or not. While enunciating its policy of self-reliance recently, Indian Prime Minister Narendra Modi has spelled out clear principles: Whatever is produced to replace imports must be competitive and comply with the best quality standards prevailing in the market place. Government cannot support substandard and uncompetitive products or unviable sectors from scarce financial resources.

For example, the budget proposes to waive Port dues and terminal handling charges payable in US $ on exports from July to December 2020 and reduce them by 50% for the period January to June 2021. This means a significant reduction in Port and cargo handling revenue and possibly deferred investments for profitable entities of the economy. Are the sectors benefitting from such support viable? Will the companies benefitting from these measures improve their competitiveness and increase their market share?

Diabetes and smoking cannot be significantly reduced by higher taxes but by a robust campaign by health authorities to sensitize people on the serious risks to their health. Government has again hiked the import tax on sugar from 80% to 100% purportedly in a bid to reduce diabetes in the country. Sales of locally produced sugar on the local market decreased from 18,000 tonnes to 16,000 tonnes in 2018-19 in a domestic market of some 36,000 despite the increase in import duty from 15% to 80% in June 2018. Does this simply mean that locally produced sugar is significantly less competitive than high duty paying sugar imports? Are we bent on flogging a moribund horse?

Rational choices

There is also a hullaballoo about some Rs 3.5 billion expected to be collected from the Solidarity Levy of 25% from those earning more than Rs 3 Million annually. People must remember that the brunt of the fiscal burden of the country is borne by mainstream Mauritians through the payment of VAT, excise and taxes on goods and services. In 2018-19, it represented about 61% or the lion’s share of total tax revenue. In addition, mainstream consumers pay various contributions through the retail price of petrol and diesel or the air fare, etc. Is it not high time to usher the urgent fiscal reforms required to ensure a fairer sharing of the tax burden in line with the skewed distribution of wealth in the country?

The proof of the pudding is in the eating. Against such a backdrop, it was imperative to make well thought out policy choices and judiciously allocate the scarce financial resources available on the basis on rational principles and sound analysis to sort the wheat from the chaff in order to chart viable pathways to boost the future prospects of the country in the exceptional circumstances imposed by the Covid-19 pandemic.

* Published in print edition on 12 June 2020