Budget Highlights 2023
The fourth budget of the incumbent government, presented on 02 June 2023 by the Hon. Dr Renganaden Padayachy, comes in handy at a time when the Mauritian economy is showing nascent signs of converging towards its pre-pandemic level amid geopolitical uncertainties. The tourism industry has, so far achieved a better outturn than in 2022 (and even 2019) with 414,228 arrivals cumulated between January and April 2023. As such, our economy is well on track to achieve its target of 1.3 million tourists this year and 1.4 million tourists in 2024, which should positively trickle down and help buttress other sectors such as retail, trade, construction and real estate. With greater latitude to support a stronger rupee, the authorities are on track to bring inflation rate down to around 6 - 7 per cent (down from 10.8 per cent in 2022).
However, the regressivity of inflation is nibbling away at spending power of the down-trodden. Restoring purchasing power is a conspicuous policy priority. Against a backdrop of encouraging macroeconomic performance, the 2023-24 budget contains an array of social measures aimed at achieving deeplyentrenched traction on these objectives.
The proposal to lower taxes on fuel products by about Rs 5 per litre is a welcome respite for consumers at large. Also, retail fuel - used as an input into production of other products - will help shave off a few digits off the projected inflation figures for the year 2023. The other part of the purchasing power equation which has been addressed is the hike in minimum wage to Rs 15,000 for the most vulnerable people. This measure will impose minimum costs on employers. Admittedly, most employers are already paying well above the minimum wage. Given that the lower income group have a relatively high marginal propensity to consume, we can only support our claim of more sustained economic activity.
In a similar vein, the 2023-2024 budget proposes to increase the Old-Age Pension (OAP) by a monthly level of Rs 1,000, benefiting around 200,000 people in Mauritius as at 2022. While an ageing population poses demographic challenges, we do not believe that the pension increment will significantly weigh on the public debt situation in the short term at a time when the government further consolidates its fiscal position through revenue-mobilisation strategies.
The 2023-2024 budget creates leeway for new growth-enhancing sectors that will help absorb unemployment, as well as catapult the country’s incursion to the digital superhighway. Pleasingly, the authorities have shown greater proclivity to rev up the engines of growth to full thrust by further invigorating the tourism sector, through enhanced promotional activities and through the allocation of premium visa for those contemplating visiting the island to avail of its state-of-the-art medical facilities.
The 2023-2024 budget provides the scope for achieving a greater access to welfare-enhancing merit goods. We can allude here to measures designed to improve access (e.g., free education from pre-primary to tertiary) as well as construction of new schools with improved pedagogical systems right from young age to incorporate new curriculum ranging from oriental studies, arts and music, to sports. Those suffering from specific pathologies, will be empowered to diagnose and detect at an early stage any potential disease in the pipeline through schemes embracing digital channels.
The frontloading of the welfare of children and of youth depicts the government’s priority to leave a legacy of healthy and well-educated population for tomorrow. The budget further contained a list of measures aimed at enabling low-income families meet the costs of raising children in the early years, as well as meet any unexpected costs of surgery interventions domestically and overseas. Not to forget the facilities to be offered to working women by allowing greater access to a larger network of childcare providers during working hours. We consider these proposed measures will help increase labour supply and contribute towards increasing the country’s potential output.
On the environmental side, the authorities clearly aim to spearhead greener measures and to accelerate the country’s march towards a carbon neutral economy. Enhancing climate change resilience of the island will come through a panoply of measures aimed at enhancing adaptation to climate change: they range from electric vehicles and buses to greening the airport. Similarly, schemes will open up for SMEs with appropriate incentives designed to encourage them to produce their electricity from clean energy sources. Rehabilitation sites have been identified at numerous beaches while construction of drains will help cover the entire network of flood-prone areas.
The budget lays emphasis on a more robust, resilient, inclusive tax system, tackling economic and social inequalities and inequities. With indirect taxes accounting for the lion’s share of tax revenues in Mauritius, revenue mobilisation will be enhanced through the wide array of reform measures. The proposed increase in taxes and duties of 10 per cent on demerit goods such as cigarettes and alcoholic drinks should help consolidate the bucks in the fiscal kitty due to their demand inelasticity. Furthermore, the proposed measure to re-engineer the tax structure towards a more progressive format will greatly help in supporting revenue mobilisation efforts. We do not believe that the proposed structural changes will discourage foreigners to come and work in Mauritius due to the attractiveness of our destination that stretches well beyond tax advantages. With now an important segment of the population not paying income taxes (those perceiving an income of below Rs 30,000), we believe that the revamped tax framework will help grapple with the ubiquitous brain drain issue among school leavers, whilst enticing high income foreign citizens, through the abolition of the solidarity tax, to fill in those vacancies which require talent and know-how that cannot be procured domestically.
To wrap it up, the 2023-2024 budget provides a bold and ambitious reform towards a more empowered and equitable Mauritius with a robust, resilient, sustained and inclusive growth. If last year’s budget helped the economy contained headwinds, this year’s budget will enable the country gear itself up into the vanguard of faster-growing economies. The 2023-2024 budget offers a Kaldor-Hicks pareto improvement and bequeaths an inter-generational legacy to our future citizens: that of a fairer and more equitable society.