By TD Fuego
Some people say that, if you want a business to fail, put an accountant in charge of it. To that, we can perhaps add, if you want the Economy to go belly up, put an economist in charge.
The accountant is so obsessed with the bottom line that he forgets that business has to do with risk-taking. And, the economist gets bogged down in book theories and forgets that the real economy is concerned with the real lives of real people.
UK’s Gordon Brown is a case in point. Hailed as one of the most brilliant economists of his time (probably due to some heavy self-promotion), he single-handedly managed to wreck the UK economy in the 10+ years at its helm. Nearer home, we have had our own little Brown. The economist (mo même meyer!) only stayed five years, but still managed to wreak havoc on the working people of this country, whilst enriching even further the already super-rich.
Yes, to be a good FM, although by no means a handicap, you do not necessarily need to be an Economics graduate! What you do need is a vision of where you want to go, a little humility to listen to your technical advisers who are probably better qualified — and certainly more experienced than you. Above all, place at the centre of your policies the ordinary people of the country, the producers of the national wealth. In passing, I would just mention that the new head of IMF, Christine Lagarde, happens to be a lawyer.
So, how has our own lawyer Pravind Jugnauth done as FM in his first year? For that, it would be worthwhile at this juncture to cast a brief retrospective look at the 2011 budget, as we cross the half way mark in its annual cycle.
For many of us, the 2011 budget got the balance just about right. It left enough slack for the entrepreneurs, going to the extent of leaving the Stimulus Package at their disposal, although Heaven knows why. Most importantly, it ensured that the ordinary working people get a share of the cake that they produce. Sure, we would all have liked a bit more (does anyone ever have enough?) but, given the catastrophe left behind by his predecessor, PKJ has done pretty well by all of us.
An Indian dictum says that man needs Roti Kapda Aur Makaan (food, clothing, and shelter) to survive.
Well, no one in Mauritius is going about naked for want of clothes or starving because of lack of food. In fact, the Ministry of Health is worried about the high incidence of obesity in the population. Housing, though, is a different kettle of fish.
That is why it was such a comfort to see that the budget contained something for all categories. From the poorly paid housemaid with an income of –Rs 5k to the middle manager earning Rs 50k+ per month, provision has been made to enable all of them to possess a home of their own. What follows is a sample of the various permutations.
For the poorer elements, Government is building several Firinga type housing estates in different parts of the island. For the better-off, land would be made available to build their own home. For all mortgage payers, there is a tax relief of Rs 120k pa on interest payment for 5 years. For first-time buyers, there is no registration fee on the first Rs 1.5m; the savings thus made can help pay 6+ monthly instalments. Lastly, the infamous NRPT — a virulent form of tax on house ownership — has been abolished altogether!
Having got access to the basic survival necessities of food, clothes and housing, people need Education in order to progress further, to achieve their potential and become good, productive citizens. It is also well established that Education is the surest way out of poverty. Indeed, it is the single most important factor that promotes social mobility.
Here also the budget has been quite positive. There is a deduction of Rs 80k for every child studying for a degree in Mauritius; this is a saving of Rs 12k in income tax. The allowance for a student at a foreign university is Rs 125k. Though modest, these reliefs are welcome to the parents who are trying to give their children a good education and a better start in life.
It is well known that investment is a function of the savings rate of a country. As of late, our national savings has fallen as low as +15 percent of GDP. This may be partly ascribed to price increases, forcing households to dig into their savings. But, the major reason has to be the imposition of tax on interest earnt; and the drop in the artificial Repo rate. I say artificial because our current economic fundamentals are such that, left to market forces, they would normally push up interest rates beyond their current levels.
The ostensible reason for a low base rate is that it boosts investment in manufacture, thus helping to create employment; and wealth. The real reason, as a matter of fact, is that it enables Governments to run huge budget deficits –symptoms of low/negative growth that a low Repo is supposed to cure — at low costs. Witness the massive overshoot by the Eurozone countries of the sacrosanct convergence criteria of 3 percent of GDP agreed by Maastricht in 1992. On the other hand, we have hardly seen investment galore, in spite of their low interest regime.
Cheap money, I am afraid, only encourages big, rash borrowing (debts), which invariably breed big trouble with a capital T… later! Look at the pickle Greece finds itself in presently. Having got rid of the taxation on interest, the next step should be a realistic Repo for Mauritius.
The Small Planter
For the 35k small planters, the reinstatement of relief on the first 60 tonnes of sugar must have come as a real boost because, for many, sugar happens to be the only source of income. For others still, they usually reckon on it when contracting any house loan, or contemplating where to send their children for further education.
The Half Full Glass
All told, then, 2011 was a good budget. But, instead of looking at the glass that is half full, some people have been seeing it half empty. We, the ordinary people, have much to be grateful for to PKJ. After all, he has brought in his first budget several measures that have made a real difference to the real lives of real people, the hallmark of good policy-making.
* Published in print edition on 15 July 2011
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