Mr Speaker, Sir,
I move that the Appropriation Bill 2005/2006 be
read a second time.
2. The Bill provides for the appropriation of
funds, as set out in the Schedule, for financing recurrent and capital
expenditure during the next financial year.
3. Mr Speaker, Sir, in putting together the
2005/2006 Budget, I have been guided once again by a deep sense of
responsibility and commitment.
4. And yet again, we have prepared the Budget
through extensive consultations. Representatives of various organisations and
people from all strata of the society have participated. I wish to thank them
for their contribution.
5. Since a nation’s Budget must necessarily
reflect the priorities of the population, we have done our utmost to meet those
demands that are reasonable and justified. We have also done the maximum we
should to keep government spending within the means of taxpayers - For, in
September 2000, the population placed their trust in us to redress the state’s
finances and the economic situation.
6. They wanted us to put our country on a
higher development path, to secure a better future for themselves and their
children, and to build a fairer and safer society for all. That was the mandate
the population gave us. That was the mission we set out to accomplish.
7. In every policy, in every reform and in all national budgets, we have placed high priority on our commitments. Every step of the way, we have turned promises into realities. We have been doing so not only to keep faith with the electorate, but as part of a responsible strategy for improving the standard of living of our citizens.
8. Today, as I present the fifth and last Budget of our mandate - “un Budget de Continuité” - I can proudly report that the task entrusted to us by the population has been accomplished. We have raised hope where there was despair and restored confidence where there was anxiety.
9. In the four years that we have been at the helm:
10. These are but a few of our actions and their results.
11. Looking forward, we see vast opportunities for yet more achievements.
12. That is why, Mr Speaker Sir, the Budget I am presenting today is prepared around the long-term vision of transforming Mauritius into a high-income economy.
13. Since higher income and higher standards of living ride only on the back of economic growth, it is vital that we lift the trend growth rate of GDP to a much higher level.
14. It is equally vital that we take a Big Push approach to investment, for isolated investments may maintain the present growth rate but will not lift it. This Big Push approach should rest on sustained investment in the modernisation of our infrastructure, on stimulating private investment and productivity and on creating new space for investment.
15. Therefore, Mr Speaker Sir, the first priority of the 2005/2006 Budget is to modernise the physical fabric of Mauritius.
16. Our second priority is to put our industries and our workers on a more solid foothold to invest, to compete and to create wealth.
17. A third priority is to open up substantial new economic space for investment.
18. We know fully well that a rising economic tide does not lift all boats. Our economic ambitions must be matched with a coherent plan for greater social justice and equity.
19. Therefore, the fourth priority of the Budget is to secure greater social protection for our citizens. We will continue to build on the significant progress we have made in reducing poverty and marginalisation.
20. A fifth priority is to further improve the quality of life of our citizens.
21. The sixth priority of the Budget is to protect the purchasing power of the population.
22. And the seventh priority is to further strengthen the finances of the nation.
23. Before elaborating on these strategies, I will review the economic situation in the past year and outline prospects for next year.
24. The global economy expanded by 4 percent last year, the highest growth rate in 30 years. However, latest forecasts show a slowdown in world GDP growth to 3.3 percent in 2005. The twin deficits of the United States will continue to bear on global growth. Oil prices will remain volatile with a tendency to rise. Asia, in particular, India and China will continue to take market shares away from other developing nations.
25. Regionally, GDP growth in sub-Saharan Africa is estimated at 5.5 percent in 2004. It is expected that the growth rate will rise to 5.75 percent in 2005.
26. Growth in the domestic economy for 2004 is estimated at 4.2 percent. This will result in an increase of 3.1 percent in per capita GDP - a significant progress in our standard of living. For next year, GDP growth is forecast at 5.1 percent.
27. On the expenditure side, consumption grew faster than GDP last year. This led to a drop in the national savings/GDP ratio to 23.3 percent.
28. Total investment in the economy rose by 9.2 percent in 2004, bringing the investment/GDP ratio to 22.3 percent. Private sector investment expanded by 17.1 percent last year, up from 1 percent in the previous year. This is a clear sign of renewed optimism in the economy. Foreign Direct Investment in 2004 amounted to Rs 1.8 billion, indicating that investor confidence in our economy is high and improving.
29. Inflation is now estimated at 5.7 percent for fiscal year ending June 2005. The main contributors to increases in the Consumer Price Index are the strengthening of major currencies, the increase in freight rates and the rise in petroleum prices. We have little influence over these factors. However, we are keeping a close eye on the prices of a number of commodities that weigh heavily on the budget of consumers. Besides monetary policies, which put a special focus on inflation control, our fiscal policies and microeconomic policies have been effective in containing the inflation rate to a manageable level.
30. The unemployment rate was 8.4 percent in September 2004. This is the latest figure available from the latest Continuous Multipurpose Household Survey.
31. In the external sector, in 2004/05, imports are projected to increase by 9.6 percent and exports by 4.5 percent. Imports are up as a result of increase in petroleum prices and heavy investment in machinery from some EPZ companies. As a result, our trade deficit increased to Rs 14.3 billion. The services account showed a surplus of Rs 11.5 billion. The current account showed a deficit of Rs 1.2 billion. The capital and financial account, inclusive of reserve assets, showed a surplus of Rs 1.2 billion in 2004/05. Our net international reserves are projected to reach Rs 51.8 billion representing the equivalent of 8 months of imports.
32. As regards the budgetary situation, there are indications that the overall budget deficit for 2004/2005 would be on target.
33. Tax revenue would amount to Rs 32.9 billion against the estimates of Rs 32.7 billion. Higher expected receipts from income tax, registration fees, excise duties on imports and VAT will be partly offset by shortfalls in customs duties and passenger fee.
34. Non-tax revenue would be slightly below the estimates of Rs 2.6 billion.
35. Capital revenue and grants are expected to reach Rs 1 billion compared to the estimates of Rs 0.6 billion.
36. Total revenue is expected to amount to Rs 36.5 billion.
37. Recurrent expenditure is likely to exceed the estimates by about Rs 0.8 billion to reach Rs 38 billion. This is mainly attributable to interest payments and expenditure on subsidies and current transfers which would be higher than estimated by about Rs 0.4 billion and Rs 0.3 billion, respectively. Wages and salaries would be on target. Expenditure on goods and services is likely to reach Rs 3.8 billion compared to the estimates of Rs 3.6 billion.
38. Capital expenditure and net lending would amount to Rs 7.5 billion against the estimates of Rs 7.7 billion. Total expenditure and net lending would thus reach Rs 45.6 billion.
39. Despite the likely increase in current expenditure, the overall budget deficit would be contained at Rs 9.1 billion, representing 5 percent of GDP as targeted. For yet another year, we have maintained the deficit on a downward track.
40. On economic cooperation, our commitment to regionalism is ongoing. We will pursue our policies to bolster the role of Mauritius in regional affairs especially with SADC, COMESA, IOR-ARC and IOC.
41. While strengthening linkages with our closest neighbours in Africa, we have also been intensifying our bonds with Asian countries, in our ambition to become the gateway between those two continents.
42. In that context, the official visit of Shri Manmohan Singh, Prime Minister of the Republic of India was a landmark. Both the Mauritian and the Indian sides endorsed the Report of the Joint Study Group paving the way towards a Comprehensive Economic Cooperation Partnership Agreement.
43. This Agreement which will cover preferential trade arrangements, investment promotion, trade in services and general economic cooperation will give a whole new dimension to the relationship between our two countries. Negotiations are being launched and, as agreed by our two governments, should be concluded within 12 months.
44. Relationship with Pakistan is also being strengthened. During the Prime Minister’s official visit to Islamabad last year, the foundation has been laid for the conclusion of a bilateral agreement on trade, investment and cooperation. A Joint Working Group has already been set up to move forward on this agenda.
45. Moreover, in pursuit of our economic diplomacy strategy, we plan to build new ties with ASEAN countries. A national working group has been instituted to this effect.
Modernising The Physical Fabric of Mauritius
46. I will now elaborate on the first priority of this Budget: Modernising the Physical Fabric of Mauritius.
47. Our objectives are clear. We want infrastructure that supports a higher growth path and improves the quality of life. And we must bring the physical fabric of our country to a level that heralds the emergence of a modern and determined nation.
48. In the transportation sector where the pressures of demand will accentuate, we must imperatively expand and modernise infrastructure.
49. There will be substantial growth in airport activities. In the next ten years, passenger traffic at the airport will exceed 3 million per year, cargo traffic will be more than 60,000 tonnes per year; and aircraft movements will exceed 27,000 per year.
50. For traffic at our port, it is estimated that in ten years, the number of containers will more than double to reach 675,000; cargo handled at the port will double; and vessels calling at the port will increase to 2,800.
51. For land transport, forecasts show that our fleet of vehicles will increase to around 400,000 by the year 2015 – a forty percent increase.
52. To accommodate these increasing demand pressures, Airports of Mauritius Limited (AML) has a masterplan that will require a total investment of Rs 27 billion, of which Rs 12 billion will come from the private sector.
53. The deliverables of that blueprint are a new passenger terminal, a second runway, the development of the East Zone for cargo, airside/landside aeronautical, landside commercial development and freeport activities, fuel storage facilities, corporate/general aviation development and aircraft maintenance facilities.
54. Government will give AML every assistance to secure necessary finance for these projects from international financial institutions.
55. I am also taking appropriate fiscal measures to facilitate implementation of the airport masterplan. For the purposes of VAT, international air transport of passengers and cargo is already zero-rated so that airlines can recover tax paid on their inputs. To enable the airport authorities and petroleum companies to do the same in respect of their forthcoming investments at the airport, I am proposing to extend the zero-rated status to provision of aeronautical services as well as to supply of kerosene including jet-type fuel.
56. The Mauritius Ports Authority plans to extend the quay at Mauritius Container Terminal, to reclaim land at Fort William, to construct a new Fishing Quay and to construct a terminal for cruise ships.
57. The Cargo Handling Corporation will invest Rs 700 million this year in the modernisation of handling and yard equipment, including two Quay cranes, trailers and gantries.
58. In all, Rs 2 billion will be invested by the MPA and by Cargo Handling Corporation in these projects.
59. In the future, we will also have to invest more in our own maritime transportation. An efficient, reliable and competitive maritime transportation will be critical to the competitiveness of the Mauritian economy. The country needs as well a minimum security of reliable supply of essential imports. The Ministry of Shipping, Rodrigues and Outer Islands will commission a study to examine the trend, structure and determinants of maritime freight rates. The study will also investigate the feasibility of acquiring additional vessels for consolidating our national shipping line. It will map out the investment requirements, elaborate a financing plan and identify private sector participation.
60. As regards land transport, the challenge is clear. It is to meet increasing demand while at the same time reducing traffic congestion.
61. To achieve these goals we will have to invest in the expansion of road networks, in mass transport, and in decentralisation.
62. To expand our road network, four projects are being implemented: the South Eastern Highway Project, the new Phoenix – Beau Songes Link Road, the Macondé Bridge, and the Malenga – Crève Coeur project.
63. In addition the Quartier Militaire Road will be upgraded.
64. In this Budget, I am providing Rs 445 million for these projects, which will cost Rs 2.1 billion.
65. Preliminary studies show that, in addition to the road projects being implemented, some Rs 6 billion will have to be invested to divert through traffic from Port Louis and from other congested areas.
66. If we add to these projects another Rs 800 million for construction of bridges, for traffic management and road safety and for road maintenance, we get an overall total of around Rs 9 billion that will have to be invested in road infrastructure in the next five years.
67. For mass transport, the implementation of the Light Railway Transit (LRT) system remains an integral part of our long-term strategy.
68. Preliminary estimates show that some Rs 14 billion will have to be invested in mass transit within the next ten years. Of these investments, Rs 9.6 billion will be in the LRT, Rs 2.6 billion in supporting and accompanying measures, and the remaining Rs 1.8 billion in sector policies and programme implementation. In this Budget, I am providing Rs 70 million for detailed studies of the LRT.
69. To decentralise Port Louis, we will make maximum use of the 3,035 arpents of land at Highlands, purchased under the Illovo Deal. These lands will be developed in two phases. Phase one will be implemented over the next 10 years. It will use up to 1,000 arpents for a number of new projects, amongst others, business parks, office buildings and residential construction.
70. The implementation of that first phase will require an investment of around Rs 8 billion.
71. As a concrete step towards decentralisation, the proposed Postal Tower on 5 arpents at Ébene will rent office space to Government departments.
72. And since an entirely new and modern city is emerging at Ébene, I am providing this year Rs 20 million for a new traffic centre in that area.
73. Government is also assigning responsibility for coordination of the decentralisation process to a High Level Steering Committee. It will be responsible for identifying those departments and services that may be moved to places outside Port Louis.
74. Government will therefore issue specific guidelines on location of activities, on renting new office spaces and on renewal of leases.
75. The lack of parking space is another factor behind traffic congestion. We will amend the Building Act to make provision of parking space a prerequisite for obtaining permits for high-rise buildings.
76. As the issue of traffic congestion is being addressed, we must recognise that buses and taxis are vital components of our public transport system. Last year, as an incentive for rapid modernisation of the bus fleet, public transport companies having more than 75 buses were given exemption from VAT on acquisition of new buses till the year 2007. I am pleased to announce that the VAT exemption is now being extended to all licensed public transport bus operators.
77. With regard to taxis, I would like to announce the following measures:
First, the DBM will introduce a loan scheme to finance up to 80 percent of the cost of acquisition of a GPS-based security system for taxis up to a maximum of Rs 50,000. The loan will bear interest at 6 percent.
Second, the Motor Vehicle Licence Fee payable by taxis will be reduced by half. Thus, the new fee will be Rs 900 and Rs 2,000 depending on the cylinder capacity of the taxi-car.
Third, the Road Traffic (taximeters) Regulations 1994 will be repealed. Regulations will also be amended to make illumination of the “TAXI” sign fixed on the roof of the vehicle optional. A taxi driver will no longer have to pay the Certificate of Registration fee whenever the licensee replaces his car.
78. The transportation problems we are facing today are a reminder that higher growth and higher income may drive away many of our problems but will bring new ones. Waste management is another one of them. As we invest in wealth creation, we must also invest in the management of waste.
79. That is why we have a well thought-out policy for management of solid waste and wastewater. Presently we have to dispose of 375,000 tonnes of solid waste a year and is expected to grow to around 460,000 tonnes in ten years. It is clear that the present physical infrastructure for solid waste management will have to be modernised and expanded. It is also evident that in the future, solid waste management that relies solely on disposal will not be sustainable. Recycling and exports must be part of the waste management strategy. At the same time we will build new economic activities around waste management. We believe a realistic target is to achieve a 10 percent recycling of total solid waste in the short-term.
80. Therefore, the National Solid Waste Strategy focuses, in the short term, on investment in collection and disposal as well as in sorting composting, recycling and export.
81. For the long-term, Government will study the possibility of producing energy from waste.
82. In the next ten years, Rs 3 billion will have to be invested in infrastructure for solid waste management.
83. For disposal, we have plans for the construction of La Laura Transfer Station, the upgrading of Poudre d’Or Transfer Station, rehabilitation of the Roche Bois and Montagne St Pierre dump sites and the extension of Mare Chicose Landfill. I am providing Rs 160 million for these projects.
84. For safe disposal, we plan to invest in a Hazardous Waste Storage Facility. This will be followed by an integrated pre-treatment, treatment, incineration and disposal facility.
85. To promote recycling, Civic Amenity Centres will be set up to enable households to dispose of their bulky wastes. This will also reduce illegal dumping of waste.
86. Private sector participation will be crucial to every aspect of the solid waste management strategies. To encourage such participation, I am providing for customs duty exemption on equipment and vehicles specifically used for the collection, transportation and treatment of solid waste for companies engaged in solid waste management activities.
87. The Ministry of Local Government and Solid Waste Management will launch a campaign to encourage backyard composting and to promote the use of recycled products.
88. Government will set the example. Public procurement procedures will be reviewed to favour the purchasing by Government of recycled products.
89. In this Budget, I am providing more than half a billion rupees for Solid Waste Management.
90. Government is also investing massively to upgrade infrastructure for wastewater management. These investments include the mega Plaines Wilhems sewerage project, house connections at Grand Baie and Baie du Tombeau and the Montagne Jacquot sewerage project. The objective is to attain 50 percent population connections by 2010. We are investing Rs 11.8 billion in these projects. Rs 3.2 billion have already been invested and the remaining Rs 8.6 billion will be spent over the next five years.
91. In this Budget, I am providing Rs 1.35 billion for the sewerage sector.
92. Mr Speaker Sir, higher growth and higher income will certainly increase our needs for more secure, reliable and efficient energy. Our response to these future needs must be carefully planned.
93. We spend annually some Rs 14 billion on energy consumption. Seventy five percent of that amount, that is around Rs 10.5 billion, leave the country in the form of payment for imports. A combination of growing domestic demand, rising oil prices on world markets and appreciation of major currencies put extreme pressure on our import bill. This is a potential risk that we must address in a comprehensive way, first by developing domestic sources of energy and second through an effective demand management strategy.
94. As regards domestic sources, one Independent Power Producer (IPP) will invest Rs 3.6 billion in a cogeneration plant to be operational by 2007. But IPPs are only part of the solution.
95. We will explore all other domestic sources of energy, especially those that will reduce our dependence on imports.
96. Besides our plan to invest in domestic sources of energy, the CEB will invest Rs 1.2 billion in the St Louis Power Station which will be fully operational by 2006. And total project costs for the redevelopment of Fort Victoria Power Station is estimated at Rs 1.7 billion. These bring total investments in the energy sector to Rs 6.5 billion for the next five years.
97. Now our plans for energy demand management.
98. The focus of our plan on the demand side is on more efficiency and safety.
99. One way to promote efficient use is to give the population access to energy saving devices and appliances. We are therefore reducing duty:
- on dimmers and control panels from 30 percent to zero,
- on timers for appliances from 30 percent to zero,
- on electronic ballasts and low loss transformers from 15 percent to zero, and
- on low energy consumption lamps including compact fluorescent lamps from 5 percent to zero,
- on electric storage water heaters from 40 percent to 15 percent.
100. For effective demand management policy, we also need to improve efficiency in the use of non-electricity energy. Our transportation policy focusing on a mass transit system and our traffic decongestion will bring about significant savings in energy for our country.
101. Having the tools and the means to save energy is not enough; we need to educate users on the various ways to translate energy savings into lower bills. To that end, the Ministry of Public Utilities is launching a booklet for disseminating relevant information on the efficient use of energy. This year, we are making provision for an all-out sensitisation campaign on energy saving.
102. To set the example, Government will review procurement procedures to set strict efficiency criteria for the purchase of energy-consuming equipment including air conditioners.
103. We will also carry out an energy audit in Government. This exercise will identify and assess the weaknesses in energy consumption in the public sector. The audit will be carried out not only to generate savings but also to ensure safety and security.
104. Mr Speaker Sir, for the demand management policy to be effective, consumers must be able to distinguish between products that are efficient and those that are not. To this end, Government is proposing to introduce an Energy Efficiency Bill to promote the use of energy efficient appliances and equipment. These products will have to be appropriately labelled to inform customers of their efficiency in terms of energy consumption.
105. The other critical element of the physical fabric of our country is the infrastructure for harnessing and distribution of water resources.
106. To modernise and expand that infrastructure, the Central Water Authority (CWA), the Water Resources Unit and the Irrigation Authority will invest Rs 8 billion in the medium term.
107. The CWA is investing Rs 2.5 billion in the next three years. Its strategic priorities are to reduce water losses, to guarantee the quality of drinking water and to improve delivery and efficiency.
108. The Water Resources Unit will invest some Rs 4.5 billion in the next ten years in the construction and rehabilitation of dams and feeder canals, in additional ground water development and in the construction of Flow-Measuring Structures.
109. The Bagatelle Dam for which land has been reserved at Highlands will be an important infrastructure to address the problem of water supply in the region of Port Louis.
110. The Irrigation Authority will invest some Rs 1 billion in the next five years. Work on the Northern Plains Irrigation Project – Phase II will be completed by February 2006 at L’Espérance Trébuchet. Work on other projects in that same Phase II will start in 2006 and will be completed by 2010. The investment plans also include modernisation of the Northern Plains Irrigation Project–Stage 1 and Rehabilitation of Bathurst Canal.
111. In all, the projects of the Irrigation Authority will concern 4,680 small planters and cover some 3,745 hectares of agricultural land.
112. There are also small-scale irrigation projects at Victoria, Calebasses, Solferino and l’Amitié which will start in November 2005 and will be completed in 2010.
113. We estimate that some Rs 100 billion will be invested to modernise our physical fabric over the next ten years. Some of these investments will be from private enterprises.
114. And some of the projects will be implemented on a PPP basis. Therefore, the PPP Unit will take a proactive role to facilitate these projects.
115. The Unit will soon issue a PPP Guidance Manual. It will also assist public sector bodies to identify, structure and implement specific PPP projects.
116. The BOI will also be called upon to ensure that investments in these priority sectors are realised on time. It will set up a specialised unit to promote, attract and fast-track both local and foreign private investments in infrastructure.
117. I will now elaborate on the second priority of this Budget: Putting our enterprises and workers on a better foothold to compete.
118. Mr Speaker, Sir, in spite of the numerous adversities in recent years, many enterprises are doing what is required to compete and expand. Even in the EPZ where some enterprises are closing down, others are expanding. We see the same fighting spirit in the sugar industry and there are reasons to believe that this fighting spirit pervades every sector of our economy.
119. This is the kind of entrepreneurial drive that we have in this country. And this is the kind of drive that we need to join the league of high-income economies. So, Mr Speaker Sir, we will nurture this entrepreneurial culture by putting our entrepreneurs on a stronger foothold to compete globally, to create jobs and to thrive. Government will strengthen its support on many fronts and in all sectors of the economy.
120. In agriculture, Government is fully committed to ensuring the long term viability and sustainability of the sugar industry. We will pursue our endeavours both on the local and international fronts to put this industry on a better foothold to grow.
121. First, we are maintaining our efforts at the level of WTO and EU to protect our interests.
122. Second, we will kick-start an ambitious and comprehensive ten-year Accelerated Action Plan.
123. The Accelerated Action Plan for the sugar sector maps out an effective set of responses to the challenges we face. It comprises amongst others:
124. I am announcing today a number of measures to address the most pressing needs of the Accelerated Action Plan.
125. First, as an initial step, the Mauritius Sugar Authority will raise a loan of Rs 500 million for derocking and irrigation. This will be used to provide derocking and irrigation facilities free of charge to small planters across the island. Such facilities will be provided to small planters having regrouped themselves in viable units. With this measure, some 2,000 arpents spread over the island will be derocked by end of 2006. Our objective is to derock some 30,000 arpents of small planters’ land over the next ten years.
126. Second, Government recognizes that a number of small planters will not be able to become competitive in agriculture. Government will therefore exempt those owning less than 10 arpents, from payment of land conversion tax, land transfer tax, capital gains (morcellement) tax and morcellement fee on the conversion of up to one hectare of land. This exemption will be granted if the land is within a permissible development area and where no irrigation is available. A fast track procedure will be established to process all applications for the above exemptions.
127. Third, planters are presently contributing significantly to the energy sector through their bagasse. Currently, some 45,000 planters and employees already own from 15 percent to 20 percent of the equity capital of IPPs through the Sugar Investment Trust (SIT). Government believes the ownership base should be widened to allow those who did not join the SIT to now become shareholders. This is in line with our policy to strengthen the democratisation process. To this end, I am pleased to announce the creation of an Energy Equity Fund that will own between 6 percent to 8 percent of the equity capital of all present and future private IPPs, including the Centrale Thermique de Savannah, over and above the shareholding of SIT. SIT will own 25 percent of the equity and all planters will be invited to subscribe to the remaining capital of the Fund. The Mauritius Post and Cooperative Bank (MPCB) will make available a loan under a special scheme to assist all planters in this acquisition. With this measure Mr Speaker, Sir, planters and employees of the sugar sector as shareholders, will NOW directly and indirectly, through SIT, own between 21 percent to 26 percent in the private power sector.
128. To implement these measures, the Sugar Industry Efficiency (SIE) Act 2001 will be amended.
129. In the Non-Sugar Sector Strategic Plan, it is spelt out that transfer of technology is essential to the viability of the sector. Hydroponics is one such technology. And it is the way forward in agriculture. But the cost of infrastructure is high and the system complex. For these reasons, a number of small planters are reluctant to engage in this activity.
130. In view of the very good potential in hydroponics, Government wants to help small planters by providing them with the infrastructure. To that end, the Food and Agricultural Research Council (FARC) will set up a state of the art hydroponic village at Belle Vue at a cost of Rs 18 million. The DBM will advance Rs 15 million to FARC for implementation of that project. This village will contain about 26 individual units to be rented to planters, with all infrastructure and amenities to start cultivation. These planters will benefit from free rental for the first six months. The project will be extended to other regions.
131. Mr Speaker, Sir, the recent heavy rainfall and cyclone have caused considerable damage to the crops of many small vegetable planters. For many of them, this is a time of hardship. It will take them time to recover from the damages. We cannot and we will not turn a blind eye to their plight.
132. I am proposing a package of measures to assist those in need and to encourage them to replant as quickly as possible. To all planters registered with the Small Planters Welfare Fund and who have suffered damage, we are giving:
133. Mr Speaker, Sir, some 6,200 vegetable growers will benefit from these measures which will be implemented during the current financial year.
134. Tobacco planters have asked for an increase in the price of leaf due to an increase in the cost of production. Government has agreed to an increase of 10 percent for both flue-cured and air-cured tobacco.
135. In the tourism industry, there are plans for an estimated Rs 45 billion of investment by the private sector over the next five years: Rs 30 billion under the Integrated Resort Scheme and Rs 15 billion in hotel projects.
136. These projects will increase significantly the number of hotel rooms. We will therefore need an aggressive marketing campaign to ensure that occupancy rates go up with room supply. To this end, the Mauritius Tourism Promotion Authority (MTPA) will implement this year a special marketing plan. Its marketing efforts will focus on traditional and new markets. To implement that plan, I am providing a one-off grant of Rs 30 million in the current financial year, over and above the MTPA Budget.
137. But effective marketing will be only part of the answer.
138. We will put a very strong emphasis, starting this year, on development of shopping tourism.
139. Government will also ensure that future air access policy will address the new needs of the tourism industry while safeguarding the high quality profile of the tourism product.
140. I will now announce our strategy to put the manufacturing sector on a stronger foothold to compete.
141. Enterprise Mauritius is now a reality. Legislation for the transfer of undertaking will be introduced shortly into the National Assembly. It includes provision for the transfer of the industrial estates of MIDA to BPML. This will enable Government to develop an integrated strategy for the development of business parks and industrial estates for our enterprises, including SMEs.
142. A specific area of focus of Enterprise Mauritius will be to facilitate creation of networks, clusters, subcontracting and strategic partnerships. To succeed in this endeavour, hindrances to a completely free flow of goods and services across the manufacturing sector and the economy will need to be removed. Government will therefore continue discussions with the stakeholders to address a number of sensitive issues relating to the removal of these barriers, including the bonded factory status of EPZ enterprises and their special VAT regime.
143. As a further step in this direction, we are completing the process of abolishing duty on industrial inputs that are not produced locally. Accordingly, we are abolishing duty on a range of packing and packaging materials such as bottles and jars; caps, corks and lids; cans, tins and labels; boxes and crates. Duty is also being removed on screws and washers, nuts and bolts, chains and springs. Duty is also being significantly reduced on valves, bearings, transmission shafts, gaskets and joints. I am furthermore eliminating duty on work trucks, trailers and special purpose vehicles.
144. Let me now announce four more measures for the manufacturing sector.
145. First, the Ministry of Industry has been preparing an action plan to make our jewellery sector more competitive. To promote modernisation of local jewellery units, DBM will introduce a Jewellery Loan Scheme to provide loans of up to Rs 1 million with an interest rate of 8 percent, repayable over a six year period.
146. Second, the Income Tax Act provides that in case of take over of an ailing manufacturing company, its unrelieved losses may be claimed by the new company, provided it agrees to safeguard employment of the workers. I am now extending this concession to cases of merger.
147. Third, two years ago, a 10-year tax holiday and a special tax credit of 60 percent of equity investments made in spinning companies was introduced to promote this activity. I am extending this scheme to cover weaving and dyeing activities as well.
148. The next measure is designed for those manufacturing companies that have to acquire land or a building for modernisation and/or expansion of their operations. Currently, the incentive registration duty applicable on such acquisitions is 5 percent. As an exceptional measure, I am proposing to lower this rate to 2.5 percent for manufacturing companies until the end of the year 2007.
149. In recent years, the ICT Sector has gained pride of place in our development vision. Global competitiveness has made investment in ICT a must. This Government recognised that imperative some four years ago and acted on it. Today, the rapid results in terms of value added and jobs created speak eloquently of the success of that endeavour. The fast growth of that sector is also clearly expressive of the bright future ahead. Seventy-eight companies are currently operating in the sector, employing around 3,500 persons. Based on investment projects already approved at the Board of Investment, employment will reach 5,000 by the end of this year.
150. In this sector, our progress is better than anticipated. But we must be constantly alive to the pressures of global competition. We must bring down our costs further. To this end, the Information and Communication Technology Authority will undertake a comparative study on the telecommunication sector in terms of cost structure and infrastructure.
151. As a user of ICT, Government can exert a major positive influence on that sector. So our expenditure plan on ICT will give a boost to the industry while at the same time modernising the civil service and improving its productivity. In the next financial year, we will spend Rs 105 million to implement e-government projects. These include computerisation in the civil service, in particular, the setting up of a Local Area Network in Ministries.
152. I am providing Rs 25 million for the implementation of the Government Online Centre (GOC) which will host the Government portal. This will enable Ministries and Departments to operate computerised Registry, Stores Systems and the Central Personnel System.
153. To mitigate risks arising from potential security breaches, the Public Key Infrastructure will be set up. This will ensure greater security in the application of e-government.
154. The National Computer Board will manage four ICT Regional Centres in different parts of the island to spread ICT Culture. These will comprise a documentation centre, free public internet access, a computer lab and a help desk to assist and guide the public.
155. An amount of Rs 40 million will be spent on the acquisition of hardware and software for the first phase of the School IT Project.
156. Mr Speaker, Sir, we also need to put the financial services sector on yet more solid foundations for its development. We have already put in place the institutional and regulatory framework to align the country to standards of international best practices. The Banking Act, the Bank of Mauritius Act, the Insurance Act, the Securities Act and the Financial Reporting Act are clear demonstration of our vision to provide the sector with a strong framework to withstand the challenges of a global economy.
157. Confidence of investors in our financial system is critical. The Financial Reporting Council, the Mauritius Institute of Professional Accountants and the National Committee on Corporate Governance will play an important role by overseeing financial reporting, auditing and corporate governance standards.
158. To promote the sector and to build capacity, the Financial Services Development Act will be amended to enable management companies to provide both administration and management services to non-Mauritian entities. The Sugar Industry Pension Act will also be amended to allow the Sugar Industry Pension Fund to provide a broad range of financial services to operators outside the sugar sector. To provide Mauritius with a more modern and comprehensive regulatory framework for collective investment vehicles, appropriate regulations will be made, under the new Securities Act.
159. Another industry which is fast growing into a mainstay of our economy is the seafood hub. We are happy with the results we have obtained in a short span of time. So, we will continue our support to that new industry.
160. Government will, with the private sector, organise a workshop in November this year on the Mauritius Seafood Hub to attract more players in that industry.
161. DBM will raise the limit on loans to operators in the seafood hub from Rs 5 million to Rs 25 million. These loans are meant for the setting up of processing plants.
162. We will continue to encourage fishing in the high seas. A new batch of 24 fishermen will be enrolled soon at the Fisheries Training and Extension Centre at Pointe aux Sables for training in off-lagoon fishing.
163. Good progress has been made so far in the construction and upgrading of fisheries posts and fish landing stations. I am providing another Rs 5 million to continue this programme.
164. Bad weather allowance for fishermen will this year be increased to Rs 145 and I am providing Rs 147 million for the fishing sector in this Budget.
165. Access to finance is an issue that cuts across all industries and is particularly more of a problem for medium, small and micro enterprises. If we want investments that will democratise the economy, it is essential that finance be made available and affordable for enterprises.
166. Our first thought goes to those unemployed who want to start their own business. For them, DBM will set up an Emerging Entrepreneur Loan Scheme. Seed capital loans of up to Rs 100,000 will be made available to entrepreneurs wishing to set up small enterprises in the manufacturing, handicraft, ICT or services sector. The loan will cover up to 100 per cent of the investment. It will bear interest at the concessionary rate of 6 per cent per annum and will be repayable over a period of 5 years. For borrowers who cannot offer any security, the loan will be secured under the existing SME Loan Guarantee Fund.
167. To operate efficiently, to expand and grow globally competitive our SMEs must not only catch up on innovation, they must also build the capacity to respond to that imperative. To this end, DBM is setting up an SME Efficiency Improvement Scheme to provide finance, amongst others, for research and development projects. Loans of up to Rs 500,000 will be made available at the rate of 6 per cent per annum and repayable over six years with one year moratorium.
168. As we encourage our men and women to set up small and micro businesses, we must also create more space for them to trade their products. DBM will offer a new loan facility of up to Rs 10 million for the setting up of market fairs and craft villages to private promoters and local authorities. These loans will carry interest at the rate of 9 per cent repayable over 8 years with one year moratorium.
169. The Working Capital Scheme that DBM introduced last year has been successful in financing working capital of up to Rs 500,000 on a revolving basis to SMEs. With increased competition, SMEs have indicated that they will need more funds to provide longer credit terms to their clients. It is therefore proposed to increase the loan ceiling to Rs 1 million.
170. The overall investment climate is another issue that concerns all businesses in all industries.
171. Last year, I announced a series of measures to facilitate, promote and attract investment. The work in this area is ongoing. We have reduced administrative red tape to investment and cut down on delays. However, more remains to be done.
172. My Ministry, in collaboration with BOI and Customs, is carrying out a thorough reengineering and computerisation of the duty and tax exemption process. Once completed, the new system will further facilitate business operations in Mauritius. It will also minimise discretion in granting duty exemptions.
173. Mauritius will be included in the Doing Business Survey 2006. This survey aims at benchmarking the regulatory environment for business in over 145 economies around the world. The Doing Business Survey will complement the Investment Climate Assessment (ICA) in continuously monitoring the business climate in Mauritius.
174. We are revamping the Scheme for Attracting Professionals in Emerging Sectors (SAPES). The revised Scheme will focus on attracting high-level talents in all sectors and not just emerging sectors as was initially intended.
175. For foreign promoters and for high-level profile expatriates and talents whose applications have been recommended by the BOI, the Ministry of Labour will issue the work permit in less than one week after the effective date of the submission of the application.
176. New entrepreneurs are those who are most in need of a strong foothold to compete. For them, I am providing Rs 12.6 million for construction of a business incubator by the SMIDO.
177. This year, I am providing Rs 35 million to the National Handicraft Promotion Authority (NHPA), including Rs 10 million for handicraft development.
178. These provisions will go towards the establishment of training centres at Flacq and Terre Rouge, a new Handicraft centre at Paillotte for high level training on production of up-market handicrafts, a Handicraft Trade Fair and a National Craft Competition to reward outstanding craftsmanship.
179. In order to rationalise service provision, SMIDO and the NHPA will be merged into the Small Enterprise and Craft Development Authority. Legislation will be introduced shortly.
180. I am also increasing the allocation to the co-operative sector to Rs 68.2 million.
181. Mr Speaker Sir, last year, I made democratisation of the economy one key priority of the Budget. I laid out a clear course of action to meet that momentous challenge. We will remain steadfast on that course.
182. Let me first report that the actions we announced last year on democratisation are all being implemented. And I am particularly pleased to report that soon and very soon indeed, the Employee Real Estate Investment Trust (EREIT) will issue units to some 325,000 men and women. These units will entitle them to participate in the capital growth that will be realised upon the development of its initial land holdings of 500 arpents.
183. This is a manifestly clear illustration of our resolve to democratise the economy.
184. I stressed last year that it takes more than one Budget to achieve our objectives. So, we are doing more.
185. Today, I would like to announce another major act of solidarity with workers in our country. We are creating a Workers Hardship Relief Scheme to give assistance to workers. Under that scheme, workers facing financial hardship in the future due to closure of their enterprises will receive a one-off payment of Rs 6,000 to meet their subsistence expenses.
186. Employers will be called upon to make a one-off contribution of Rs 100 per worker to that scheme. Government, for its part, will contribute Rs 100 per government employee. The scheme will be managed by the National Solidarity Fund.
187. This should send a clear message to all workers, Mauritians and expatriates, that this Government will stand by them all the time.
188. Government will also give job seekers all necessary support to find jobs that meet their aspirations in the shortest possible delay. The Human Resource Development Council will work together with the Ministry of Labour, Industrial Relations and Employment to establish an electronic job exchange. This should reduce the time it takes for a job seeker to find a job and for an employer to find workers.
189. The Ministry of Labour, Industrial Relations and Employment will implement a Cité de Métiers which will provide information, counselling and guidance to job seekers. This Centre will bring together, under one roof, functions which are being performed by different organisations.
190. We are providing Rs 6 million for construction of two new labour offices in Curepipe and Rose Belle.
191. We are conscious that long-term unemployment can push families into poverty. We want therefore a strategy to reduce long-term unemployment. To this end, an integrated National Employment Strategy is being prepared in consultation with the ILO. The strategy will combine macroeconomic policies with coherent social plans aimed at creating employment and alleviating poverty.
192. A study is being carried out for the setting up of an occupational health laboratory to reduce the risk of health hazards at the workplace. A sensitisation campaign will be carried out on occupational hazards in the construction sector.
193. To give workers a stronger foothold to compete, we must invest in human resource development – to raise their productivity and to ensure their employability.
194. Last year, we introduced a number of new training schemes to tackle the problem of mismatch on the labour market. Our aim was to bring the unemployed back to work and to give new entrants a better chance of finding a job.
195. Most of the programmes are ongoing.
196. There has been a notable increase in placements under the Skills Development Programme. The number of graduates and diploma-holders registered under this scheme increased by 47 percent. I must applaud the efforts made by the private sector where placements of these students increased by 66 percent.
197. A tracer study conducted in March this year indicates that 71 percent of participants were able to find a job, of which 32 percent in the private sector and 39 percent in the public sector.
198. In view of the success of the Skills Development Program, the principle of placement will be extended to those who have studied up to CPE, SC and HSC, respectively. Preference will be given to those who have registered for the training programme and to the long term unemployed. They will be placed in companies to allow them to acquire relevant hands-on experience.
199. In the EPZ sector, there is a persistent paradox of workers losing jobs and vacancies not being filled due to a shortage of skills. To address the skills mismatch that underlies this paradox, our training must be more focused. Government is therefore introducing a new training scheme intended for developing skilled manpower and increasing productivity in the EPZ. Under this new scheme, 1,000 persons will be trained as machinists. Each trainee will receive a stipend of Rs 3,000 per month for the duration of the training. Employers in the EPZ have agreed to contribute fifty percent of the cost of the stipend. Government will fund the remaining fifty percent.
200. I am providing Rs 53 million for all these training programmes, and Rs 175 million to the IVTB. Total financial resources for training next year, including allocation from the National Training Fund and IVTB own resources, will amount to Rs 378 million.
201. Our emphasis on training also embraces the needs of the Civil Service. In the past four years, some 9,300 public officers at different levels both in Mauritius and Rodrigues have been trained. For next year, I have made provision for the training of 2,000 public officers in the field of ICT. I am also providing Rs 5 million for the Distance Learning Scheme.
202. Mr Speaker Sir, I shall now elaborate on the fourth priority of the Budget: opening more investment space.
203. There are times in the affairs of a nation when its leaders must, with responsible courage, dare to cross traditional borders and dare to break away from the confinements of established ways.
204. These times are here. We have decided to move with these times – with our times – For that is the only pathway to realise our vision of taking Mauritius to the league of high income economies.
205. Indeed, we are stepping out of the traditional mould of post independence fiscal policies which rely heavily on trade taxes for revenues, on protectionism for development and on high tariffs to contain consumption of imported goods.
206. I am announcing today a historic decision.
207. A decision that will harness the full potential of Mauritius. A decision that will open new economic space and encourage entrepreneurship. A decision that will unleash creativity and innovation. A decision that will generate massive investments across the entire economy.
208. Indeed, Mr Speaker, Sir, I announce today a historic decision to make of Mauritius a Duty Free Island. There is a national purpose for making this historic decision. It is to transform Mauritius into a shopping paradise for tourists.
209. It is to create a new and unprecedented dynamism in our economy for investment and to take a big step toward the full employment growth path.
210. We recognise that success in such an endeavour comes with a price. Government collects over four billion rupees every year from customs duty. The Treasury cannot afford to sacrifice that much revenue in one go.
211. And some of our customs tariffs are there to protect local industries and their employees. It would not be responsible nor would it be fair on the part of Government to reduce all these tariffs all the way to zero. Some of our enterprises need more time to become globally competitive.
212. Notwithstanding our concern for government revenue and for protection of local industries, there is a minimum initial effort we must make in terms of duty reduction for the duty free shopping project to get a viable start.
213. Therefore, Mr Speaker Sir, the Duty Free Island Project must be well-measured and well-paced.
214. It will therefore be phased over a period of four years.
215. The first phase starts tomorrow morning.
216. To create a sufficient impact on the development of shopping tourism, I am removing the 80 percent rate of customs duty, the highest in our tariff book, on all items of clothing. As from to-morrow, all garments including suits, dresses, shirts, t-shirts, polo shirts, kurtas, trousers, vests, jackets, blasers, churidars, shararas, cardigans, handkerchiefs, swimwear, ties, underwears, nightdresses, pyjamas and socks, to mention but a few, will be duty-free.
217. I am abolishing the 80 percent duty on all articles of leather, including handbags, wallets, purses and belts.
218. I am abolishing the 80 percent duty on jewellery.
219. Duty on sportswear, sports and training shoes and on infants’ shoes is being removed altogether.
220. Footwear which is subject to a rate of 80 percent or a fixed rupee amount, whichever is higher, will henceforth attract only the specific duty element.
221. I am also eliminating customs duty on:
222. Moreover, the rates of duty on a host of products will be substantially reduced.
223. The list of products is far too long to be enumerated here. But I must stress that the sheer number of products covered by these substantial duty reductions should create enough of an impact for a successful take-off of duty free shopping.
224. The momentous customs duty reform also ties in with our policy to boost tourist arrivals and to expand room capacity. The Rs 45 billion investment planned in the tourism industry in the next five years and massive investment in port and airport infrastructure, are all part of this integrated approach.
225. But that is not all. For we will give further support to the Duty-Free shopping project.
226. We are convinced that our enterprises will move fast to take advantage of the vast opportunities that duty free shopping brings. Government wants to encourage them and facilitate their response. Therefore Mr Speaker Sir, we are abolishing duty on large scale shelving systems and racks. This i