Budget 2014 : Positive, but…

Budget 2014 arouses at best mixed feelings.

It attempts to give the impression that under a very difficult economic environment, the Minister of Finance has been able to walk a very tight rope to achieve fiscal consolidation and at the same time try to boost economic growth and improve living standards. It includes various measures which are positive and which we approve of. But the budget also conceals the negative aspects while highlighting the positive measures.

Positive measures

There are a handful of short-term measures that will help to boost some sectors, namely: the removal of VAT on photovoltaic panels which should reduce the cost by 15 per cent and greatly encourage production of renewable energy; the provision of a subsidy of 25 per cent of the freight cost on containers exported to all countries in Africa except South Africa and Madagascar; a Special Fund to boost arrivals from regional destinations during the low season; full VAT refund scheme for agricultural machinery, equipment and tools; and the introduction of an investment tax credit scheme to encourage high-tech manufacturing. There are also one-off goodies to win the hearts and minds of voters.

Poverty Alleviation and Housing Empowerment Scheme

In addition to these budget sweeteners, there have been some laudable determined efforts to provide real relief to the working poor and to those below the poverty line. These include: the measures for some 17,000 low-income families to have full ownership of their lands; financial support to the 125 private pre-primary disadvantaged schools; the innovative pedagogy project in 6 low-performing schools across the country with the assistance of ESSA Foundation; the free internet access to children from families on the Social Register and income support to some additional 8,000 vulnerable families. This package of measures to tackle poverty issues is laudable indeed. It is a daring and frontal attack on the conservative stand of the traditional elite who have consistently resisted the inclusion of such measures in the Budget on the grounds that it encourages a move from a culture of work to a culture of stipends.

Growth and Competitiveness

The main failing of Budget 2014 is its lack of focus on immediate challenges — productivity and competitiveness, export growth, employment, savings, food security, an ineffective monetary policy conflicting with macroprudential policies and the appreciating real effective exchange rate.

The 3.8% growth projection for 2014, rising to 4.4% in 2015, is not bold enough in tackling the serious economic problems. For example, it is too low to create the number of jobs needed. Unemployment is going to remain a major problem. Our lackluster economic growth, which had slowed to 3.2% in 2012, means that other African economies are leaving us behind. There are no major productivity-driving reforms being made or new measures aimed at promoting industrial competitiveness, encouraging innovation and creativity and directed at other key drivers of growth. There is absolutely no emphasis on or priority given to job creation.

Instead we have stop-gap measures like the opening up of the country to high calibre professionals; these have more cons than pros in the present context where real estate prices are outrageously high and land prices have risen so much as to be out of reach of most Mauritian households, and when the majority of the young and educated are leaving because they have started to believe that they have no prospect of finding decent work here.

What is more important than big level spending on road construction right now is private and public sector investment in the economic arteries of this country to get growth flowing to every part of it. We need more focused prioritized investment expenditure in the economic heart of this country – science, engineering, technology and innovation – if we are to become a high-skills, high-tech economy.

Fiscal Slippage

Budget 2014 is deceitful because it omits many things that government should have included to paint a clear picture. It is a budget concealed in a pretty dress to look good, a pretty facade which lacks transparency and does not stand up to proper accounting standards. It reflects reality only partially. Indeed the budget figures, adjusted for the Special Funds, (see Table: Consolidated Budget) tell a totally different story.

The budget deficit works out at to be -4.8% in 2013 and -5.0% in 2014. Capital expenditure in 2013 is around 4.5% of GDP of which some Rs 5.0 billion or 1.3. % of GDP is accounted solely by expenditure on roads and land drainage. (As at September 2013, a mere 56% has been spent out of the total earmarked capital expenditure representing 1.8% of GDP). Our failure to reinforce the fiscal framework exposes us to the risk of a ratings downgrade from Moody’s.

Absence of reforms

The silence on reforms gives the impression that the government is at best a reluctant, low-key reformer. From the ‘Consolidated Budget’ Table, we can see that potentially concerning is the low growth in tax receipts, the high growth in the government wage bill and the continuing upward trend on welfare benefits. The budget falls short of sufficiently curbing the growth of the Welfare State, cutting wasteful expenditure by government departments and reforming the public sector, especially the SOEs which are like albatrosses around the neck of government, draining public finances. The reform agenda seemed to have just died.

No strategic direction

Budget 2014 is not a document that could be used to derive a coherent picture of our vision. It could be described as a motley collection of initiatives, projects and fine-sounding hubs. It reads as though each of the ministries and departments have made their own separate veritable wish-list – a patchwork that reflects the fragmentation of the whole 10-year ESTP – a mere assemblage of inputs from different quarters that are then presented as a new vision. Given that the overall picture is missing, there is ample confusion and uncertainty about the vision, the policy orientations/strategies and the Plan.

The Budget should have aimed for a calibrated balance between providing measured short-term stimulus to a recovering economy and medium-term (fiscal) consolidation. It should have remained focused on the strategic priorities of growing the economy and protecting the most disadvantaged in society, while balancing the Budget through a mix of savings, efficiencies, reforms, asset realisation and revenue-raising measures. With growth hit by the downturn, Mauritius needs more than wagers. It needs well-targeted public spending and the reform route to resource mobilisation. That means it needs policymakers who can take tough decisions, starting now.

* Published in print edition on 15 November 2013