The Hon. Pravind Jugnauth, Prime Minister and Minister of Finance and Economic Empowerment, presented the 2017-18 Budget amidst challenges around investment, growth and employment.
The Budget presents some rather positive macro-economic fundamentals as the Minister seeks to rebalance some social giveaways with tax collections. The growth in recurrent revenue (spurred by 10.3% increase in tax receipts) has, for the first time in years, caught up with the increase in recurrent expenditure of 8.3%, and therefore maintaining the recurrent budget deficit at 2% of GDP in 2017-18. The imbalance in the capital budget funding requirement will be contained next year, thanks to the external grants/credit from foreign governments and releases from special funds, totalling Rs12.7bn.
The Minister elaborated on the significant financial support offered by the Government of India to fund the public sector investment programme. With the external grants, the public debt to GDP ratio is expected to improve to 63% next year; it would appear that the structuring of the line of credit in the form of redeemable preference shares is not accounted for as public debt. At PwC, our view is that if you have to refund it, it should be treated as debt regardless of its name. We therefore estimate the public debt to GDP ratio to be 66.8%.
Public and private sector investments remain constrained by administrative bottlenecks. In 2016-17, out of a projected public capital expenditure of Rs35bn, only Rs24bn was spent, meaning an implementation rate of 69%. The creation of the Economic Deve-lopment Board, e-licensing business platform, and public institution reforms, are welcome. However, experience from past Budget initiatives, such as the electronic procurement system, indicates that the level of adoption remains low or requires a change in culture. Unless working methods evolve, the desired efficiency gains will not be derived.
Transport and utilities continue to dominate: Rs14.6bn will be invested in the water infrastructure over the next three years. In past Budgets, significant funding in water projects was made through the Build Mauritius Fund and, as these special reserves are now extinguished, the pressure on public finances will be unsustainable. Mauritius has one of the lowest average cost per cubic meter of water consumption in the world (Mauritius $0.28, South Africa $0.93, UK $3.46). Whilst investment in water is welcome, the economic cost is not being passed on to the consumers. Government after government has encou-raged this paternalistic approach, and the population has now come to expect everything from government.
On the tax front, the Minister has balanced the need to attract investment (through tax holidays or reduced tax rate on exports) and erosion of the tax base. In an attempt to tackle income inequality, a new solidarity levy of 5% has been introduced on high income earners.
Addressing income inequality may however be better achieved by other means such as targeted social benefits in terms of health, education, transport and food subsidies. The government spends over Rs31.5bn (29% of total recurrent expenditure) on social benefits and subsidies.
With the income exemption threshold and other reliefs, there are only around 100,000 taxpayers in Mauritius, that is, only 18% of the workforce. The burden of personal taxation is already highly concentrated when compared to Singapore and this will be even more.
Overall, whilst the macro fundamentals appear sound, the Budget has not gone far enough to focus on key priorities and restore confidence. The Budget is silent on some critical issues such as the BAI funding shortfall and the Betamax ruling. For transparency, the population needs to understand the implications and the Budget does not appear to tell the full story.
We remain in the dark as to how these costs will be met!