A budget of sound bites …….

Published in Le Mauricen , 28 March 2015
There were high expectations that the budget 2015-16 will lay down the new government's vision and roadmap for economic development via a series of big bang reforms that will take Mauritius to a whole new orbit of growth. The Budget remains an enigma long after the cheerleaders and the media have taken a break from their feverish excitement. For one looking for big bang reforms the Budget is not the place to look for them. It is rather evolutionary, incremental, not distinctly different from its predecessors.

But the major break from the past is in its nicer sound bites and catchy phrases to make headlines -smart cities, techno poles, Marshall plan against poverty through parrainage, nation zougadère , incentives for the Mauritian diaspora, SMEs - ile Maurice nation  d’entrepreneurs, among others ,many of these recycled from elsewhere.

            Thus at a first glance it is a budget that most of us should support. It has distributed goodies and short term gratifications to all quarters such as the Rs10,000 increase in personal allowance, 6 cubic meters of water per month free of charge, crash courses  for gradués chomeurs , one-off compensation  for small planters…you name it ! But the devil is in the fine print. When you scratch the surface-some of the biggest headline grabbers, and a few of the new sound bites- the budget shows a lack of the necessary substance to address our economy's structural problems, resuscitate the country's ailing economy and realize growth rates of 5.3 to 5.7%. As the dust settles after the budget debate, let us examine the truth behind the statements and claims.

         The big bang expectations of business and industry seemed to have been tempered, besides the voluntary depreciation of the rupee, by the “Smart City” concept which look more like a repackaged IRS-RES scheme- a restyled IRS without the gated communities which will, however,  not only be inaccessible for most Mauritians but also likely to entrench inequalities across the already divided Mauritian society by creating a new enclave exclusively for the propertied class, talented professionals and expatriates. We have presently more urgent things in the pipeline like the development of our broadband networks and web-based applications and e-services, the use of smart devices, sensors, and actuators, and information processing etc, and in due time, maybe by the 2050s, we  may be more confident in our narratives of  our urban future. 

    Indeed in most of the measures announced some of the basic ingredients are missing. It’s like a chef trying to make an omelette without eggs. In the SME sector, for example, just by throwing money at the sector will not necessarily dynamise it. Most of the incentives in the sector seem to have solely encouraged investment in tabagies and minor food processing (personal and household goods), restaurants and in construction (mason-builders). The alarming trend is in the manufacturing sector; its contribution to value added has been decreasing and there are few new entrants joining that sector. What would you expect from workers with a mean year of schooling of less than 13 ?  To be a marchand ambulant !!! At the very least we could have modeled ourselves on Taiwan, South Africa and Singapore which have utilised their technology research institutes to scour the world for cutting technologies and use their own laboratory facilities to assess their appropriateness to local conditions and build pilot versions to demonstrate them to prospective investors.

      On the resounding Marshall plan against poverty, the state is absolving itself of its responsibility. Where they got it all wrong is that Corporate Social Responsibility (CSR) practices, whether voluntary or compulsory, are not a panacea and cannot on their own be expected to deliver all kinds of outcomes. They are not a substitute for public policy. The CSR is already fast acquiring a peculiar nasty ethnic overtone, for the potential beneficiary has to carry his begging bowl all around the corporate world looking for potential sponsors and seeking their consent for financing his project. And who is not aware of the prejudices and the ethnic demarcations/compartments of our private sector and Mauritian society. !!! Many companies have started their own foundations or favoured some NGOs in the hope of doing good but often end up creating somewhat professional but tiny self-serving silos having little impact on the community  as a whole.

         And we also believe that the Minister's irrational exuberance for Gold - termed as the "barbaric relic" by Keynes- is misplaced. Instead of setting up a Gold Fund and urging the Central Bank and Mauritians to invest in a sterile asset putting at risk their hard earned savings and our external asserts, Government should follow the lead of the Indian minister of finance in his recent budget to do exactly the opposite. Namely, encourage hoarders of gold to monetise their holdings by depositing them with an institution in exchange for cash. Holding gold channels savings into unproductive forms, whereas these savings could be used productively by the financial system to promote growth and employment. 

Consolidated Budget Deficit (including Special Funds)
Fiscal Aggregates as a % of GDP	2014	Jan-Jun 2015	2015-16
Revenue	21.6	19.3	20.7
o/w Tax revenue	18.6	17.6	17.9
Expense  (Current Expenditure)	21.2	20.6	21.9
Capital spending	3.6	3.3	2.4
Budget Deficit (excluding Special Funds)	-3.2	-3.7	-3.5
Consolidated Budget Deficit	-4.2	-4.6	-3.6

       A scrutiny of the Budget figures reveals that it lacks the growth generators to realize the above 5% growth rates. The budget deficit has been reduced in FY 2015-16 by drastically slashing capital expenditure to a mere 2.4 % of GDP, one of the lowest seen since FY08/09. Our current expenditure as a result of the increase in old age pension goes up to 22 % of GDP despite promises during the electoral campaign to meet its cost through a reduction in wastage and unproductive recurrent expenditures. This reorientation of the budget, where a very large portion of it is actually going towards recurrent expenditure at the cost of public investment, will impact negatively on the growth rate, in the reduction of unemployment and in alleviating poverty.

The figures also show that, despite claims of no tax budget, there is a hidden tax of Rs 1.6 billion on petroleum products transferred by STC to the Build Mauritius Fund and some Rs 1.5 billion of STC profits beings  credited to the budget in FY15-16 instead of being passed on to consumers in terms of a reduction in petroleum prices. The Minister of finance has used the Special Funds like his predecessors to hide the real budget deficit figures, especially the Rs 3.4 billion transferred from the Special Funds in the half year-Jan-June 2015 -budget and we believe that the reason given that   “ Concerning budgetary figures for the first six months period January to June 2015, .. the statistical ratios have not been compiled because they are not very meaningful as they should normally be computed on a twelve months basis.” only adds more grist to our mill. The whole storyline of the budget on delivering a growth rate of 5.3 % in 2015-16 and 5.7% in 2016-17 based on a reduction in public investment while relying heavily on private sector projects – mega or smart cities which can be realized only in the medium to long term not in the next two years- is not convincing.  It is not simply a case of the maths not adding up. The problem is that the budget lacks credibility. It is mere sound bites without the crucial ingredients for a higher growth path.