On Why We Should Expect A Ground Breaking Budget

It is perfectly reasonable for a government to endeavour to consolidate its relationship with the winning coalition of voters who supported it by demonstrating that they have no intention of giving up on the salient promises of its electoral campaign. It is nonetheless equally important to carry on with the actual task of governing.

The absence of serious economic policy announcements from the new government almost two months after the elections can be cause for some concern among the population in general and among economic operators in particular.

The Government Programme, which has recently been presented in the National Assembly by the President of the Republic, makes for very interesting reading as regards the intentions of government, according to the list of objectives to be achieved over the next five years. As one would expect from this exercise, it does not either prioritise these intentions chronologically nor does it say how they will be financed. In that sense therefore there is nothing “economic” about it.

On the other hand, in the face of what constitute rather dramatic developments in some of the critical variables of our economic environment — the consequential depreciation of the Euro, the vertiginous fall in the price of oil and the announcement of a Quantitative Easing Programme by the European Central Bank — the red flags are out and operators are reasonably expecting to get some signal of where all this may lead to.

Add to this the fact that the Bank of Mauritius has postponed the meeting of its Monetary Policy Committee scheduled for the beginning of this month, without any date being announced for when it will be held next. One surmises that this decision must have come from the Ministry of Finance and that probably no meeting shall be held before the presentation of the Budget for 2015, which is now programmed for the middle of March, about six weeks from now.

Assuming that this absence of clear indications regarding the future direction in which the Minister of Finance intends to push economic policy is not a deliberate move would, to our mind, represent a serious misjudgement. If some believe that there is “madness” in this method, then lo and beware for there surely is “reason in this madness.”

A more reasonable interpretation would be that this is clearly a deliberate and controlled communication (non-communication) exercise. The implication would then be that this is a harbinger of more interesting things to come. Although by adopting this approach the Minister is engaging on a very risky path he must be convinced that his budgetary announcements will be have more impact if they are packaged for a one-time delivery.

Compare this to the approach of some former Finance Ministers who were more adept at “managing public opinion” by subtly distilling some indications at regular intervals before the budgetary exercise. The present approach remains a gamble because the longer the wait and in the absence of the proverbial “leaks” which accompany such an exercise, there is bound to be an expectation of high drama when the budget speech is finally delivered.

In these circumstances any failure to meet the romped-up anticipation will lead to a crisis of expectation which will in turn induce an unduly negative reaction to the measures announced by the Minister.

Budget presentation time is reputed to be overly hyped in Mauritius. This year it will be even more so given the fact that this is the first non-Labour Party-led budget for the past nine years. To what extent can all that has been said above help us make an intelligent guess about what will be the defining characteristics of the next budget? As we suggest above, it will most probably be predominantly reform-minded and change-driven: a true-to-form “Lutchmeenaraidoo” budget with its deliberate positive bias towards the middle classes.

What we suspect and hope would be less reminiscent of what we have been used to, that this is going to be anything but a “no tax” budget. It is high time for a serious reconsideration of this total aberration called the “flat tax” regime. Otherwise one would also expect to find a more activist government in terms of industrial policy including the use of fiscal measures as incentives for sustaining entrepreneurship development. (Industrial policy includes the services industry.)

From Campaigning to Governing

One generally accepted view about the recent elections is that the victory of the Alliance Lepep was more about a huge protest vote against the Labour and MMM parties and their leaders rather than a clear adhesion to the victors. That the present government has itself internalized this narrative is aptly demonstrated in the behaviour of its members during the nearly two months that it has been in power.

Indeed one cannot escape the fact that instead of acting as the office-holders of a governing party, the actions of the members of government seem to be rather dictated by an imperative of trying to prove to the electorate that they have done the right choice.

It is perfectly reasonable for a government to endeavour to consolidate its relationship with the winning coalition of voters who supported it, by demonstrating that they have no intention of giving up on the salient promises of its electoral campaign. It is nonetheless equally important to carry on with the actual task of governing.

The coming weeks shall be very eventful with the celebration of several religious festivals and Independence Day. It is therefore most improbable that the government will announce any serious new policy measures, whether in the economic or other sectors. 16th of March will likely be the fateful date.

 

* Published in print edition on 6 February  2015

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