The professional background of the Honorable Xavier-Luc Duval, the first chartered accountant to act as Finance Minister, comes across clearly in his budget. He, in fact, favors prudence and pragmatism over economic theories. The budget takes into account the murky waters of the global economy and the recurrence of shocks of globalization which a small island economy like ours is exposed to. The recent economic turmoil has put forward various imperfections of our economy which may have stifled growth. He is forecasting a marginal reduction in growth to 4.0 % from 4.2 %.
The Minister of Finance has addressed the previous simplistic policies that might have curtailed growth through fiscal measures :
– Abolition of solidarity levy tax on dividends and interests ;
– Abolition of capital gains tax ;
– CSR Tax now computed on chargeable income, thereby avoiding the cascading effect of dividend income being taxed twice or more ;
– Abolition of business rates by Municipalities ;
– Fiscal incentives to Freeport companies extended indefinitely ;
He has also realised that the various public sector institutions need reform and some will even require the help of strategic partners, the aim being to enhance competitiveness of these institutions.
The engines of growth are set to be SMEs and the traditional private sector. The Minister of Finance has in fact elaborated a ‘Marshall Plan’for the SMEs which takes into account access to credit, cost of credit, access to space, better access to markets and ease for financial institutions to account for bad debts.
To balance the growth for good he has given an impetus to the social sector.
First, he has bridged the medical care of public and private partnerships by allowing NSF to be used for private health care which resolves the burden on public health.
Second, he has set the foundation for a strong development of low-cost housing with the setting up of the Housing Development Trust, partially financed by Government and the CSR funds.
Third, he has embarked on the inclusion of workers of the informal sector within the NPF with Government contributing for the worker’s share.
Fourth, he has broadened beneficiaries of sports activities by encouraging the private sector to employ high-potential athletes and also assist them in benefitting from the Trust Fund.
Sixth, he has ensured that the unemployed acquire on-the-job experience with the assistance of HRDC and Government sharing in the stipend.
However, to balance his books and to ensure that his budget deficit is maintained at 3.8 % of GDP and to reduce its Debt to GDP ratio to a more cautious level of 54 %, he has been innovative with his fiscal measures :
– Tax of 10 cents on sms ;
– Offshore Management Companies be charged solidarity levy in addition to banks and telecoms ;
– Tax amnesty for a specific window – June 2012.
Overall, the Minister of Finance has set policies with a view to steer the economy towards a robust resilience and fiscally prudent manner by drawing lessons from economies that are currently in dire situations. He has redressed anomalies and has put the ball squarely in the hands of investors to take advantage.
This is not a budget to be judged as a ‘one-off’but is part of a process, of a vision for the betterment of the economy provided no further external shocks force a change in direction. In summary, it is about sustainable growth, private sector initiatives, an SME Marshall Plan, affordability of services, institutional reforms and catering for the most needy.