The Prime Minister and Minister of Finance and Economic Development delivered this Government’s third and mid-term budget as a continuation of its roadmap, with little change to economic policy.  Infrastructure projects and the fight against poverty continue to occupy centre stage.

Government was handed yet another gift by India in the form of a credit line of USD500 Million (MUR18 Billion), which in addition to the MUR17 Billion previously secured, will finance much needed infrastructure projects and development programmes.  Construction of the flagship Metro express for MUR18 Billion, is scheduled to kick off in September 2017.  Other infrastructure projects include the construction of two administrative blocks for government offices in Highlands for MUR3.6 Billion, construction of social and low income houses for MUR1.8 Billion, and the balance for a large number of smaller infrastructure projects across the island and Agalega.

Both social and business needs were addressed, however the impression is that the former has taken precedence in this budget.  In its objective to combat poverty and reduce inequality, Government is enhancing again this year a series of social measures and incentives.  These will lead to higher disposable income to the needy and improve their access to basic amenities.  A novel measure is announced in the form of a negative income tax in support of those earning less than MUR10,000 a month.  This will benefit a massive 150,000 employees.  Government also realises that the quality of life of the population would be enhanced if it addresses basic needs such as a permanent water supply for which the target is set for 2019 at latest.

In terms of Budget outturn, GDP growth was scaled back slightly to 3.9% for the current year and is projected at 4.1% for 2017/2018.  Government has projected a small budget deficit of 3.2%, down from an actual figure of 3.5% for the current year, and has resisted the pressure to depart from a uniform tax system of 15%.  Noticeable changes however are an additional levy of 5% on individuals earning in excess of MUR3.5 Million annually, and a reduced corporate tax rate of 3% on exportation of goods from the current rate of 15%.  For the financial services sector, our competitive business tax regime is being gradually eroded in the wake of a rapidly changing international tax landscape driven largely by OECD and EU.  A wider tax reform is necessary, but this will only be dealt with in a blueprint for the sector in due course.

With only two more budgets left to shape up the economy, Government does not have much time left to convince and conquer.  This will happen only if the intentions are swiftly translated into actions, and if tangible signs of the proposed transformation of the economy start to appear soon.  2017/18 could well be the year, given the huge financial resources that the Government now has at its disposal.

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