Thursday, December 3, 2009

Budget Open Discussion - Better Days Ahead?

‘Recovery’, word of votive comfort, one that is deliberately and gladly being passed around like a sacred chalice and one that is somewhat ‘trendy’ across global markets. That word happened to be the mould chosen by the Finance Minister to lay down the plans for its shaping throughout the upcoming year – 2010. A National Budget speech, delivered in an unprecedented simple format, easily understood by the layman, set great optimism for the path ahead.

Interesting it is to observe that Mauritius seemed to have found shelter in its nest while most of the rest of the world around it fell from the onset of the financial recession. Now, a predicted growth rate of 2.8% for this year comes as a relief indeed, so are the forecasted 4.3% for 2010 and 5% by 2011. However, is 2.8% or 4.3% growth good enough for Mauritius?

The reason given as to why we sustained just a scratch was: ‘supportive fiscal and monetary policy mix which has benefited the country to ride out the crisis.’ Opinions are here varied, but figures are somewhat cogent; we choose then not to outline causes and effects and do not attempt to establish correlations. Rather, how would the fiscal and monetary policies change given a different economic landscape ahead?

Taxes for now remain the same; Income, Corporate and VAT at 15%. Interesting to note is that the Budget deficit shows an increase from Rs8.2bn in 2008/2009 to 13.7bn in 2010. The Government Debt as a percentage of GDP decreases from 59.6% at the end of 2009 to 58.7% at the end of 2010. From a theory point of view, it would be insightful to locate Mauritius on a Laffer Curve*; is Mauritius on the good side of the curve? Would an increase or decrease in tax increase revenue?

As for the Additional Stimulus Package, it is to be maintained up until next year. Proponents and opponents here are many as well. However, given now another year of ASP, the relevant consideration is how will it be managed? Will it be by sector, individually assessed or any other method?

Under the limelight were also the increase in tax exemption threshold and an increase of 3.5% for income earners (of less than Rs 12,000). A look at the inflation rate reveals an interesting fact; inflation was down considerably this year, 2.6% from 9.7% in 2008. Prediction for next year does not cross 5%. So in real terms, has purchasing power increase?

Otherwise, concern about climate change has been at the forefront as well. Considering a greener Mauritius is of course a welcomed initiative and prioritizing it as part of the theme of the budget is in itself a major step. However the projects to sustain the vision have not been explicitly outlined. It would then be interesting to note its development over the upcoming years.

On a good note perhaps, may we be granted better days ahead… The door to opinions and objections is here certainly opened to all.

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