«One of the main features of the 2006-07 budget is its repeated emphasis on the need for Mauritius to adapt to the new post-preferential economic model. This is coupled with an appeal for bold and risky measures to be taken in a calculated way. The objective is to release the Mauritian genius from the shackles of sterile routine and insularity, while placing it on the path of openness, initiatives and discipline.

As the Minister of Finance himself has stated in his speech, these are noble ends, but he quite realistically adds that they require painful means. It is as if one were hearing the distant echo of the famous words of Sir Winston Churchill on taking office in May 1940, when he told the British that he had “nothing to offer but blood, toil, tears and sweat”. But he also promised to them “victory, victory at all costs” and did achieve it with their full support. Likewise here, the Minister is appealing for responsibility, efficiency and discipline, at least for the next three years or so, so that the sacrifices being imposed bear their expected fruits.

The 2006-07 budget is built on three main pillars, namely the opening of the economy, the redress of public finance through the control of expenditure and the launch of an all-encompassing Empowerment Programme.

New taxes

The set of forty reforms listed in the budget speech targets inter alia investment facilitation and labour market feasibility. The control of public expenditure daringly makes a dent in non-discretionary subsidies and, at long last, acknowledges the negative impact of aging on pensions. Finally, the Empowerment Programme, which is presented as having a life span of five years only, is meant to see Mauritius through the difficult transition period of adaptation to the new economic model. This Programme is a very significant one, with a project value of Rs 5 billion over the quinquennium and an allocation of Rs 750 million in 2006-07.

Another characteristic of this budget is the new taxes, namely a National Residential Property Tax, applicable to all property owners, subject to a floor, and a solidarity levy imposed upon “profitable hotels” and tour operators. The levy is stated to be “temporary”, namely for four financial years. One question remains unanswered for the time being: will non-profitable hotels be exempted? Leaseholders of campement sites will no doubt feel the pinch as they will be exposed to market rates and face the risks of auctions. One can only hope that the market principle be applied in all cases where the true cost of services has been masked by subsidies borne by taxpayers.

The budget deficit for 2006-07 is projected at 4.0 percent of Gross Domestic Product (GDP) or Rs 8.6 billion in absolute terms. The revised figures for 2005-06 are 5.5 per cent of GDP or Rs 10.7 billion. It is also noteworthy that the ratio of receipts to revenue will increase only marginally over those two financial years, from 19.9 to 20.0 per cent of GDP, whereas expenditure will be brought down from 25.4 to 24.0 percent of GDP.

This is a step in the right direction. It is in accordance with the fiscal rules, which the Minister has adopted, namely to borrow only for investment purposes, to set the net public debt ratio on a downward track and to keep total public expenditure constant after adjusting for inflation. One would have been more reassured, however, if the Minister had incorporated those rules in a Fiscal Management Responsibility Act.

Overall, the 2006-07 budget has opened up a new vision, which calls for strategic action and effective implementation. There is no time to spare, especially since the need for the structural adjustment of the economy and for healthy public finances has been with us for several years. But let us not cry over spilt milk. The future requires our full attention.»