Set against a backdrop characterized by a challenging global economic environment, the budget 2022-23 presented by the Honorable Minister of Finance Dr. Renganaden Padayachy, charts the pathway towards a sustained and inclusive recovery. True, as a small open island economy which is heavily dependent on tourism, our economy had faced a major tail event setback in 2020 with the COVID-19 pandemic bringing economic activities to a screeching halt. As we were slowly coming to grips with the pandemic, a major ‘unknown unknown’ surfaced in the first quarter of 2022: the war between Russia and Ukraine which sparked off global inflationary pressures. Mauritius, being a net importer with a relatively high foreign inflation passthrough was not spared.
These two challenges – both largely uncontrollable and exogenous - meant that the policy response from the Mauritian government had to be swift, specific, relevant, timely and appropriate. Indeed, the policy measures announced in the 2022-23 budget aim at balancing different objectives, prominent among which were: the need to assuage the purchasing power loss of Mauritian citizens through appropriate financial reliefs and income support measures, as well as to create the right conditions for a sustained and inclusive growth.
What do we retain as the essence of the Budget 2022-23? First, it is a largely social budget with a human face. The government has rolled up its sleeves to help the population grapple with cost-of-living hikes, through the deployment of a variety of support measures. To this end, the budget paves the way for a bold move from a flat income tax system to a more progressive income tax system aimed at lowering tax rates for those receiving below Rs.75,000, without affecting higher income groups. Similarly, it proposes to increase pension support to all eligible citizens by Rs1,000 effective as from 01 July 2022. At a time when many businesses are gradually migrating towards normalcy after two years of suppressed pandemic-induced performance, these measures come as a welcome respite. In line with these relief measures, the budget also provides for an amendment in the Small and Medium Enterprise Act that changes the definition of SMEs, and that aims to make several thousands of small firms eligible for special assistance schemes offered by the Government and by different governmental institutions (e.g., Development Bank of Mauritius). These supply-side reforms, coupled with the novel measure aimed at limiting construction contracts below Rs 20 million for SMEs only, will help foster an entrepreneurial spirit and help sustained potential growth, going forward.
Urban citizens, irrespective of their income groups, will now be exonerated from paying municipal taxes. Parents who are funding their children’s tertiary studies will now be able to benefit from a larger deduction, now Rs. 500,000 from their annual income taxes. Low-income borrowers will benefit from a fairer and more transparent ‘Sale-by-Levy’ system. The subsidy system will be extended to basic necessities, including the archetypal ‘pain maison’ and flour, which account for a high proportion of the income of the downtrodden. The State Trading Corporation (STC) will also benefit from funding aimed at allowing the provision of essential necessities at subsidized rates.
The Budget 2022-23 lays the foundation to gradually wean our economy off imported goods. A bold agricultural policy aimed at boosting sustainable and eco-friendly farming practices has been announced. From cattle breeding to fishing, they all have one overriding aim: encourage local production of agricultural products and ensure optimal usage of our land resources and of our exclusive economic zone.
To ease access to African and Asian seaports, the budget 2022-23 proposes to overcome logistical bottlenecks through the charter of special vessels. In a highly competitive market, it is expected that this measure should help buttress our exports sector. In parallel, the budget 2022-23 sets the tone for attracting more tourists to our island. The budget 2022-23 aims at attracting more ‘high spending’ tourists to visit the island by quickening the transit time from plane to hotel through special fast-track facilities at the airport. The budget of the Mauritius Tourism Promotion Agency (MTPA) has been increased to facilitate the promotion of our island as a favorite destination to non-traditional markets.
The financial services sector – a linchpin of our economy - has proved its resilience during the COVID-19 pandemic, despite of a number of reputational setbacks. Mauritius has recently been removed from the EU’s black list, the FATF’s grey list and from the UK’s list of high-risk countries due to the commendable measures taken by the government to improve its AML-CFT regime and to promote the integrity of the jurisdiction to the eyes of foreign investors. The sector has also well been served in the budget 2022-23. The latter made provisions for the launching of a regional renminbi hub and of a National Payments Card to facilitate e-transactions. Foreign investment will be encouraged through the fast-tracking process to be put in place in opening a bank account and in granting a license / permit.
The move towards safe, clean and environmentally sustainable energy sources is a recurrent theme in the budget. From the provision of solar kits in public places, to the procurement of energy-efficient buses by the National Transport Corporation (NTC), there is a firm commitment by the government to meet the climate-related credentials enshrined in the sustainable developmental goals by year 2030. Tax-based incentives will also be provided to encourage procurement and use of hybrid cars. A carbon-credit trading system – a bedrock incentive-based measure in Environmental Economics - and sustainable bond scheme will be introduced as well and should enable entities with green credentials from deriving pecuniary benefits from their below-target emissions.
On the demographics front, the government is aware of the inevitable toll an ageing population has on the budget deficit and the debt situation through the generous pensions system and the free healthcare system. Indeed, with an increasing share of the population above 60, future budget exercises will become more complicated.
One has to concede that it was a delicate balancing act to meet the needs of different stakeholder groups. The budget 2022-23 provides a bold and ambitious ‘feuille-de-route’ towards a cleaner, more environmental-friendly Mauritius with a sustained and inclusive growth. It has the necessary ingredients aimed at equipping the economic machinery with adequate buffers to weather potential economic headwinds.