The budget exercise must above all provide a positive policy response to the people’s expectations and help put in place a new economic model geared to boost growth, significantly reduce unemployment, improve the standard of living and quality of life of people, assure inclusive prosperity and narrow inequalities
There is as every year a build up and high expectations in anticipation of the budget speech. In essence the government budget scheduled on 29 July will present the government proposed revenues and spending for the 2016-17 financial year. It will also map out the matrix of budgetary policies through the allocation of funds and the leverage of fiscal and other tools to address the diverse problems crippling economic performance in the country.
The country faces tough challenges in a difficult international context marked by a lacklustre growth outlook in most advanced economies which are also our main markets and the adverse fallout of the Brexit vote. This is not the time to spell out new visions for the future but to establish an honest reality check on the fundamental ills afflicting our country and addressing them innovatively head on. This is therefore the time for cogent and coherent policies and targeted actions. Hopefully, the urgent economic imperatives and priorities of the country will supersede petty politicking which has bogged down the country for too long.
From the people’s point of view, a low growth rate ranging between 3.4% – 3.7% during the 2012-2015 period, high unemployment affecting in particular the young, female and graduate job seekers, widening inequalities, eroding standard of living, poverty, lack of competitiveness in a liberalized marketplace and poor strategic thinking and innovative acumen are some of the many daunting challenges faced by the country. For too long, these have remained unattended despite successive governments tom-tomming that they would resolve these systemic problems. The situation has in fact worsened.
The deepening inequality in the country is epitomized by the disconcerting fact that the annual salary of the lower rung employees in the country is less than the new package of monthly salary cum perks of a Member of the National Assembly (MNA) of Rs 157,485 and much less than that of a Minister earning with allocations Rs 349,685 per month. The new scale of salaries and perks of the political hierarchy was blithely approved without any compunction by the MNAs themselves in the National Assembly last month.
Inequality is also evidenced by the huge 7:1 ratio of disparity between the monthly salary of Rs 122,000 of a Permanent Secretary and that of a labourer earning Rs 17,375, cast in stone in the 2016 Pay Research Bureau as an enshrined symbol of status of the top brass of the Government Establishment. This ratio is even worse when compared to the salary of those occupying higher posts of the government hierarchy such as Senior Chief Executive earning Rs 152,000 per month. A similar high disparity of income prevails in the private sector between the lower and mid-echelon posts and the top management.
This structural inequality is enhanced by a fixed tax rate of 15% applicable uniformly on incomes irrespective of the quantum of monthly salary received and a standard corporate tax of 15%. Such a policy comforts the disposable income of six-digit high income earners and further widens inequalities and the yawning revenue gap and standard of living between the haves and the working and middle classes.
In a country report entitled Mauritius, Inclusiveness of Growth and Shared Prosperity released in February 2016, the World Bank warned that there is a real risk that part of the middle classes could slip into poverty. It stated that ‘the rise in income inequality combined with lagging shared prosperity indicators have adverse impacts on relative poverty in Mauritius… The incomes of the bottom 40 percentile of the population (the lower 40% income earners) deteriorated in relative terms.’
Everyone is aware that there is a widening gap between the disposable income of the middle classes and the rising costs of their basic existential needs such as owning a car, buying land and building a house, financing the higher studies of their children or going on holidays.
Under such tenuous circumstances, the pre-budget sabre-rattling about ‘means test’ regarding the payment of the promised higher basic pension and other social welfare benefits is unbecoming, the more so as government has the option of raising revenue through fiscal measures such as applying a higher rate of tax above a threshold on high income earners.
A more rigorous budgetary discipline and a cost effective management of public funds by public entities and the Government Establishment is also an absolute necessity. Macro-economic imbalances also need to be urgently addressed. The rising public debt has reached 64.2% of GDP in December 2015. However, what is important is that it is contained and is reduced to manageable levels not immediately but within an established timeline. Shouldn’t the Public Debt Management Act which has a statutory commitment to bring the public debt to 50% of GDP by 31 December 2018 be amended accordingly to give budgetary leeway to the Minister in the preparation of the Budget and in safeguarding the welfare state?
A new economic model
Mauritius can only aspire to become a high income economy if it achieves an annual growth rate of at least 5%. This requires a judicious re-engineering of the country’s economic model into a high skilled and high-tech based economy generating higher value addition per person. This means adopting the right strategic plan and the induction of the required management expertise and skilled personnel to drive the diverse sectors significantly up the value chain.
Apart from the tourism sector which has emerged as a robust vector of growth, the key sectors having the potential to boost growth to the higher rates required are the various services’ sectors developed as new pillars of our diversified economy. These include the multifaceted activities operating or planned in the Port, the Information and Communications Technology (ICT) sector, the financial services sector, the Ocean economy or the high-tech medical sector.
In order to build the required skills pool to support such a structural transformation of the country’s economic model, the education system up to the tertiary sector must be re-engineered accordingly. The aim is to ensure in conjunction with the high skills based sectors concerned and an appropriate programme of work placements in firms operating in these sectors that the skills and qualifications acquired by the young entering the job market match the requirements of the market place and assure a seamless entry into the work place.
Going as high as possible up the value chain means that a careful mix of strategies will have to be devised as the case may be. These will inter alia include strategic partnerships or encouraging key international players to set up shop in Mauritius in areas and sectors where we lack the required expertise such as tapping the diverse resources of the Ocean economy or providing high-tech ICT or high-end financial services. Similarly, high skilled foreign professionals and technical staff would have to be recruited as required to manage and facilitate the smooth transition of the ICT or the financial services sectors, etc., towards a higher value addition mode of operation. A new high skills based economic model will therefore require looking beyond the local private sector for the required expertise, economic actors and partners from abroad.
In parallel, it is equally imperative to bolster local capacity building in all the diverse skills and professions required to sustain the high skills based new economic model.
In pushing too hard to establish a tertiary education hub, the country has compromised quality for quantity. The University ranks 53 among the top 200 Universities in Africa. Families from all walks of life are making enormous sacrifices and very often indebting themselves to finance the studies of their children in the plethora of tertiary education institutions in the country. Are students getting value for money and the possibility of smoothly pursuing further university studies abroad? It is therefore vital that the diverse diplomas and degrees offered for study are issued by internationally recognized institutions whose standing must be validated by an independent audit carried by an international institution of repute.
Reviewing the country’s economic model also means cutting the dead wood and not investing scarce resources in uncompetitive and persistently loss making activities such as the production of refined sugar in the country. The survival of the sugar cane planting community means ensuring above all as per the long outstanding 2007 Government-MSPA commitment, that 35% shareholding into the diverse ventures of the sugar cane cluster using their by-products as feedstock are forthwith allocated to the sugar cane planters and employees of the sugar industry. This will help shore, as is the case for the corporate sugar sector, the falling revenue and losses from sugar by the more remunerative revenue streams from the ventures of the sugar cane cluster.
Flawed policy response
Last year’s smart city based growth strategy was a wrong signal and a fundamentally flawed policy response to boost growth or address the problem of unemployment of the young or graduate job seekers. Instead, it promoted the investment of scarce capital into unproductive real estate developments and concrete across the country.
In addition, the extremely generous exemptions of the Smart City Scheme from land conversion tax at the rate of Rs 3.5 million per hectare and other taxes and duties granted by government deprives the Exchequer of a substantial quantum of state revenue. To crown it all, the potentially lucrative scheme can in essence only benefit large sugar estate owners who have the sizeable land assets in strategic locations required for such large and mixed combination of projects allowed under the scheme.
Lower oil prices provide a welcome leeway to Government. It also benefits economic actors through significantly lower freight costs which help our exports and imports.
The budget exercise must therefore take on board the above factors and allocate scarce resources accordingly. It must above all provide a positive policy response to the people’s expectations and help put in place a new economic model geared to boost growth, significantly reduce unemployment, improve the standard of living and quality of life of people, assure inclusive prosperity and narrow inequalities. In essence, a truly people’s budget.
* Published in print edition on 22 July 2016