It’s full steam ahead for all sectors of the economy after this amazing ‘Tour de force’ by the Minister of Finance! The whole business community has been taken by surprise this evening with one of the most business friendly budget for many years. He had earlier in the month managed public expectations by saying he was ‘no magician’ but he had a few tricks up his sleeves today, even managing to look after the poorer sections of the population with a wide number of social measures.
This feat has been made possible by a massive expected buoyancy in recurrent revenues of Rs 5.6 billion or 13.5% over 2006-07 whilst public expenditure will be kept under control with an increase of Rs 3.3 billion or 6.8% over the prior year. Revenue buoyancy is mainly from Direct/Income tax at +Rs 1.75 billion and Indirect taxation/VAT at + Rs 1.55 billion. Rs 700 million of revenues have been budgeted from Campement sites, a revenue source that could be in jeopardy with the case in front of the Supreme Court.
Globally the Minister was true to his word by keeping expenditure in line with inflation. Coupled with revenue buoyancy from the expected growth rate of 5.5% in 2007-08, the national figures do look quite healthy with public debt down to 61% of GDP, close to the long term target of 60%.
The reduction in Corporate and Income taxes to a top rate of 15% will catch the eye but this reform was planned in any case, even if the earlier application of the reduction will be appreciated.
At PricewaterhouseCoopers we particularly liked the renewed level of investment in public infrastructure and road infrastructure. The country is already beyond saturation level and if not addressed urgently, road traffic could hamper our development. The roads to be developed did not include the Quatre-Bornes/La Louise by-pass but the Terre Rouge/Verdun road will hopefully get off the ground.
The Minister continued the programme of modernising the economy with yet more measures to open the country to non-citizens and foreign investors, as well as measures to facilitate Building and Land Use permits. These reforms are the true base of the democratisation effort by simplifying procedures to do business. They were long overdue and together with Rs 2 billion from the Empowerment Fund to be invested in small businesses, the impact on investment and job creation will be real.
Also relevant were measures such as the Tax indemnity, a welcome novelty to our tax system, and the change of dates for paying Corporate tax.
The IRS sector was addressed but again the measures proposed are reasonable and should not scare away investments in this key sector. The possibility to have an IRS, with some restrictions, on plots of less than 10Ha should result in the opening up of real estate to non-citizens, particularly as the US$ 500,000 minimum amount per villa will not be a condition.
Longer term projects mentioned were land taxation reform and the review of the Parastatals sector. The latter could lead to one of the most important institutional reforms but if the DWC closure is anything to go by, addressing the future of 150 parastatals could take years. Nevertheless this key issue had to be addressed and demonstrates the Government’s desire to modernise the country and our institutions.
Modern, daring, business friendly – this budget confirms the old saying that one must create wealth before distributing it. | 