A Bridge to the Future: 2025-2026 Budget

Editorial

The unveiling of Mauritius’s 2025-2026 Budget by Prime Minister and Minister of Finance Dr Navin Ramgoolam on June 6, 2025, marks a critical juncture for the country. Framed as an urgent and sweeping response to what the government describes as severe economic mismanagement, the budget, themed “From Abyss to Prosperity: Rebuilding the Bridge to the Future,” outlines a comprehensive strategy anchored on three pillars: Economic Renewal, a New Social Order, and Fiscal Consolidation. While presented with a clear narrative of breaking from the past and charting a new course, an objective assessment requires examining the ambitious proposals against the backdrop of the stated challenges and their potential implications.

Dr Ramgoolam opened his speech with a stark critique of the previous administration, citing a ballooning public sector debt of Rs 642 billion (90% of GDP), a budget deficit nearing 10 percent of GDP, and a significant trade deficit. The claim of “reckless money printing” contributing to inflation and rupee devaluation paints a grim economic picture, which under the stark gaze of the IMF and Moody’s rating agency, emphasized the urgency of the proposed budgetary and fiscal measures. The assertion that debt servicing consumes Rs 21.8 billion annually underscores the pressure on public finances and the perceived need for immediate corrective action.

The Economic Renewal pillar centres on transforming Mauritius into an “Innovative Mauritius” driven by AI and new growth poles. This includes significant investment in Research & Development and Innovation, with a new National Research and Innovation Institute (NRII) and Rs 200 million earmarked for policy-leading research. The strong emphasis on Artificial Intelligence, with an AI Innovation Start-Up Programme, a Public Sector AI Programme for ministries, tax deductions for AI investments by start-ups and MSMEs, and mandatory AI modules in higher education, signals a clear strategic pivot towards a knowledge-based economy though it could be argued that the funding earmarked for these programmes may be largely insufficient. This digital transformation ambition is commendable, reflecting a global trend towards leveraging technology for economic advancement. However, the successful implementation of such a broad-based AI strategy will hinge on robust infrastructure, sustained investment in human capital development beyond basic modules, and an agile regulatory framework that can adapt to rapidly evolving technologies.

Resource repurposing, updated trade strategies, and smart infrastructure investment are also integral to economic renewal. The identification of four new ‘Pôles de Croissance’ – Renewable Energy, “Waste-to-Wealth,” Blue Economy, and Creative Arts Sector – aims to diversify and expand the economic base beyond traditional sectors like tourism and financial services. While these areas hold significant potential, realizing their full impact will require careful planning, effective public-private partnerships, and addressing potential bottlenecks in regulatory processes and skilled labour availability. The “reimagining” of the tourism sector with a focus on quality and sustainability, and the push for innovative agriculture with a food resilience scheme and AI integration, demonstrate a recognition of existing sector vulnerabilities and a proactive stance towards modernization.

The New Social Order pillar is presented as a compassionate counter-narrative to alleged past “social decadence.” Education is a clear priority, with significant investments in Special Education Needs (SEN), a consolidated Foundation Programme, and a substantial Rs 438 million for infrastructure improvements across all learning institutions from pre-primary to tertiary. The ambition to double foreign students within three years and construct a Hall of Residence at Réduit, coupled with a “Study Mauritius” marketing strategy, aims to position education as a potential new export sector. In healthcare, a “fundamental reform” is proposed, moving beyond traditional models to address NCDs and an ageing population. Measures such as reviewing outdated legislation, a “Path to Remission Programme” for diabetic and prediabetic patients, and increased excise duties on alcohol, tobacco (10% increase), and sugary products (doubled from 6 to 12 cents per gramme, extending to chocolates and ice cream) reflect a focus on preventive healthcare and public health. The planned recruitment of 1,000 student nurses and 30 specialists, doubling the training budget, and introducing digital health solutions are vital steps towards modernizing the healthcare system and addressing staffing needs.

Social security and housing initiatives aim for greater inclusivity. The budget provides substantial support for households under the Social Register of Mauritius (SRM), social aid beneficiaries, and increases the income threshold for assistive device grants. The decision to gradually phase out certain CSG allowances until 2027, rather than an abrupt cut, demonstrates a degree of “compassion and empathy” as claimed, while ensuring a guaranteed monthly income of Rs 20,000 for full-time employees through the “Revenu Minimum Garantie” Allowance. However, the significant and controversial decision to raise the Basic Retirement Pension (BRP) eligibility age to 65 years, phased in over five years, signals a tough step towards long-term fiscal sustainability given the increasing burden of an ageing population. This move, while fiscally prudent in the long run, could face public scrutiny and criticism, underscoring the difficult trade-offs inherent in budget formulation. But there is no better time for courageous and necessary measures, even if unpopular, than in the first years of a mandate.

The Fiscal Consolidation pillar directly addresses the inherited financial challenges. The government targets a return to 4-5% GDP growth, a primary budget surplus, and a reduction of public debt to 75% of GDP (and 60% long-term), to be enshrined in a Fiscal Responsibility legislation. The strategic allocation of future Chagos deal revenues for debt repayment for the first three years demonstrates a commitment to transparency and debt reduction. Measures to tackle “inefficiency and wastage,” including potential mergers and disinvestments of public bodies (aiming for Rs 5 billion savings over three years), reflect a serious attempt at expenditure rationalization. The strong condemnation of the Mauritius Investment Corporation as a “major financial disaster” and the move to integrate Special Funds into the Consolidated Fund indicate a push for greater accountability and transparency in public finance management.

Revenue restructuring is a key component of fiscal consolidation. Reintroducing excise duty on hybrid and electric vehicles and increasing duties on conventional vehicles (45-100% increase), coupled with a 30% increase in registration duty for first-time vehicles, are clear measures to address congestion and foreign currency drain, though they might impact affordability. The abolition of registration duty on pre-owned vehicles is a positive for the domestic market. Reforms to VAT (lower threshold for compulsory registration), the introduction of VAT on digital services from foreign suppliers, and a Euro 3 tourist fee demonstrate efforts to broaden the tax base.

On the other hand, while the personal income tax reforms – reducing tax bands to three and introducing a zero tax rate up to Rs 500,000 – are significant, their lack of progressivity could draw considerable criticism. The claim that 81% of employees will pay no income tax suggests a substantial relief for lower and middle-income groups. However, the introduction of a “Fair Share Contribution” for high-income earners (15-20% on net income over Rs 12 million) and for profitable domestic enterprises and banks (up to 5% and 2.5% respectively) may be perceived as a new burden. While presented as a measure for social solidarity and to prevent sovereign rating downgrades, its impact on investment incentives for high-net-worth individuals and large corporations will need careful monitoring.

The proposed Future Fund, to receive Chagos revenues from year four, signifies a forward-looking approach to national wealth management, explicitly earmarked for critical developmental areas like food security, clean energy, blue economy, AI adoption, and equity funds for entrepreneurs. This proactive approach to long-term sustainable development is to be welcomed.

In conclusion, Dr Ramgoolam’s first budget seeks to confront past mismanagement with a comprehensive reform agenda. It attempts to strike a delicate balance between immediate fiscal consolidation and long-term economic transformation, while seeking to protect vulnerable populations. The success of this “bridge to the future” will ultimately depend on the government’s capacity for effective implementation, its ability to navigate potential public resistance to difficult reforms, and its responsiveness to an ever-evolving global economic landscape. The budget lays out a clear direction, but the journey to “prosperity” will be a complex and challenging one.

Mauritius Times ePaper Friday 6 June 2025