Thursday, November 10, 2011

Nexus of Business facilitation, fiscal rebalancing, social inclusion for good of growth

AfrAsia Bank is pleased to post the following from guest blogger Afsar Ebrahim. Afsar Ebrahim is Partner at BDO International (Mauritius) and here outlines an analysis of the Budget 2012.

The professional background of the Honorable Xavier Luc Duval, the first chartered accountant to act as Finance Minister, comes across clearly in his budget. He, in fact, favors prudence and pragmatism over economic theories. The budget takes into account the murky waters of the global economy and the recurrence of shocks of globalization which a small island economy like ours is exposed to. The recent economic turmoil has put forward various imperfections of our economy which may have stifled growth. He is forecasting a marginal reduction in growth to 4.0% from 4.2%.

The Minister of Finance has addressed the previous simplistic policies that might have curtailed growth through fiscal measures :
  • Abolition of solidarity levy tax on dividends and interests
  • Abolition of capital gains tax
  • CSR Tax now computed on chargeable income, thereby avoiding the cascading effect of dividend income being taxed twice or more
  • Abolition of business rates by Municipalities
  • Fiscal incentives to Freeport companies extended indefinitely
He has also realised that the various public sector institutions need reform and some will even require the help of strategic partners, the aim being to enhance competitiveness of these institutions.

The engines of growth are set to be SMEs and the traditional private sector. The Minister of Finance has in fact elaborated a ‘Marshall Plan’ for the SMEs which takes into account access to credit, cost of credit, access to space, better access to markets and ease for financial institutions to account for bad debts.

To balance the growth for good he has given an impetus to the social sector.

First, he has bridged the medical care of public and private partnerships by allowing NSF to be used for private health care which resolves the burden on public health.

Second, he has set the foundation for a strong development of low-cost housing with the setting up of the Housing Development Trust, partially financed by Government and the CSR funds.

Third, he has embarked on the inclusion of workers of the informal sector within the NPF with Government contributing for the worker’s share.

Fourth, he has broadened beneficiaries of sports activities by encouraging the private sector to employ high -potential athletes and also assist them in benefitting from the Trust Fund.

Fifth, he has ensured that the unemployed acquire on-the-job experience with the assistance of HRDC and Government sharing in the stipend.

However, to balance his books and to ensure that his budget deficit is maintained at 3.8% of GDP and to reduce its Debt to GDP ratio to a more cautious level of 54%, he has been innovative with his fiscal measures:
  • Tax of 10 cents on sms
  • Offshore Management Companies be charged solidarity levy in addition to banks and telecoms
  • Tax amnesty for a specific window – June 2012
Overall, the Minister of Finance has set policies with a view to steer the economy towards a robust resilience and fiscally prudent manner by drawing lessons from economies that are currently in dire situations. He has redressed anomalies and has put the ball squarely in the hands of investors to take advantage.

This is not a budget to be judged as a ‘one-off’ but is part of a process, of a vision for the betterment of the economy provided no further external shocks force a change in direction. In summary, it is about sustainable growth, private sector initiatives, an SME Marshall Plan, affordability of services, institutional reforms and catering for the most needy.

1 comment:

  1. Indeed Afsar, we also welcome the budget as the measures are valid. However, we believe that the Minister of Finance should have explained that these measures address mainly the short to medium term in order to implement further measures going forward which, in the long run, will provide the necessary tools to face the future. One of the biggest problems in society today is the rise of cancer patients. It turns out that tobacco is not the only triggering factor but that an excessive use of pesticides on fruits and vegetables is also detrimental to health. We are of view that this issue should be urgently addressed more so since the health cost to the government will escalate as a result. We also believe that there is a lack of serious measures for the concept "Maurice Ile Durable". A budget of only Rs 318 m was established for this project when it is really urgent to focus on the problems associated with the pollution of our beaches. We believe that it would have been constructive for the government to reduce the tax on cars emitting less carbon to encourage their use as this helps in the reduction of pollution.

    You can view AfrAsia Bank's brief analysis of the budget 2012 on the following link:

    (Or click on my Name/Title on top of this comment)