Mauritius Doesn't Need the Metro Express to Go Bankrupt

Because the Sithanen flat tax has been taking care of that. In quite a splendid manner actually. As we've pointed out recently the associated toohrooh has already reached a trillion rupees. Which is equivalent to several years of GDP. Anybody who has studied up to at least Form III understands that continually growing at less than 4% -- that too in depreciated rupee terms -- instead of the 8% you promised will land you in very deep trouble pretty quickly.

We've seen our PM make a surprising visit to India before presenting his budget. The implementation rate in the public sector has slowed down. If the Metro Leger has been replaced by a watered-down version it's not because we have so much money that we don't know what to do with it. A special purpose vehicle has appeared and the debt ceiling will be amended. What do all these signs tell us?

Simplistic is Not Simple

The flat tax is simplistic. It's not simple. Your iPhone is simple. It's the product of deep thinking. No one said it better than a famous swami from Cupertino: “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” Of course you shouldn't use only the messing up of the tax structure to understand our predicament or to assess the skill of Dr. Calamity as Finance Minister for that matter. That would be quite unfair. You definitely cannot omit what he's done to our savings rate. That's another name for the multi-layered savings plan that many voters had crafted over several years if not decades. Until the bean-counter decided to blow it up when he started to build the facade of a low-tax jurisdiction. More on this later.

Metro Express Project

Should Be Put on Hold

We're better off with a bus rapid transit (BRT) system powered with double-articulated buses. This should be accompanied with good doses of congestion pricing, private cars made a lot more expensive and a tightening of duty-free privileges. The grant money received from India can be put to better use with the purchase of a fleet of fishing trawlers. Or we can buy a couple and have a few built in India. To harvest our massive EEZ under the watchful eye of let's say the brand new CGS Victory. We should also start exploratory drilling.

Kensington Turns Red

After a majority of 7,000 votes for the outgoing Conservative MP melted. So why would Kensington which is the richest region in the UK vote for Labour which promised to increase top tax rates? Essentially because of a disdain for the poor living there, "regulatory austerity" which has played a part in the Grenfell Tower tragedy and something similar to what wealthy French citizens asked for six or seven years ago. As had their German counterparts even earlier. They understand that inequality has broken the economy and will gladly pay an even higher tax rate to prevent their country from sinking.

At this point it is quite useful to check the personal income tax rates in the UK. It's 0% if you earn less than the GBP11,500 standard personal allowance but rises to 45% if you make more than GBP150,000. And there's a twist. The personal allowance starts to decrease above GBP100,000 and it's zero if you make at least GBP123,000. Something that our Prime Minister should strongly consider implementing right away.

No Choice But to Tax Dividends

We can fully understand why the Finance Minister has come up with a solidarity levy of 5%. Which calls for the taxation of dividends beyond a certain level. He has no choice as there's at least Rs150 billion-Rs200 billion of government revenue missing from Dr. Calamity's growth trajectory. Who is not worried that our national debt is increasing so fast without Mauritius getting enough done? Everybody is save the few who can't tell the difference between anecdote and data.

Of course the levy is not enough. See top tax rates should never have been lower than 25% for us to grow in a sustainable manner. Plus now there is a lot of catching up to do. Which makes a review of all the fiscal exemptions proposed in the budget an absolute urgency. Besides increases in the top tax rates should have appeared in the first Lepep budget two years ago. So at a minimum the FM should either increase the solidarity levy to 10% or come up with an additional common sense levy of 5%. Or if you insist the ayo-pa-tro-anvi-re-al-tal-lame-deor-ankor-dan-duz-mwa levy. Better still as suggested by many including Akash Goredo scrap the game of Nintendo and revert back to several tax bands and more exemptions to get the savings rate rise to its pre-bean-counting levels. So we can grow a lot faster.

Time to Open Mauritius to Mauritians

Making it easier for foreign labour to work in Mauritius makes no sense whatsover. Especially when you have a monumental brain drain problem -- noted in the 3-year strategic plan -- and so muck skill idle. What's missing are opportunities for the latter to move us all forward. Isn't there plenty of problems to solve here? Take transportation policy for example. Do we have one that's good enough? Doesn't look like it. Had we had a group of our unemployed graduates playing with the relevant data they would probably have concluded that our car pool cannot keep on increasing like this. 

Car Population Shrinks For
Third Straight Year in Singapore

They would also have been puzzled by the fact that last year the car population in Singapore fell for three years in a row to an eight year low. That's a country with a GDP per capita that's about six times ours, which has been Überized and has a sophisticated transportation system. Wouldn't this have translated into a budget proposal for making the purchase of cars a lot more expensive and difficult? It's the obligation of our Government to have enough resources to help put the hard-earned skills of all these people to contribution. We shouldn't also forget that Mauritian parents have collectively spent billions to provide our society with these game-changing resources.

Why We've Been Stuck in 

the Middle-income Trap for 26 Years

We've recently mentioned two reasons: 'competitive depreciation' and the flat tax. Land use is another one. Indeed if the roughly one-third of our land area under sugar cane contributes 1% of GDP then replacing that with stuff we have in the other two-thirds would have lifted our GDP per capita to $13,575 at the end of 2015 and made us a member of the high-income group. If you think that having so much sugar cane is compatible with what we are capable of achieving as a country then you might want to compute our GDP per capita if the two-thirds we don't have under sugar cane had it on them. I get $274. That would have placed us at the 185th position in the world or just a few dollars above South Sudan. By the way if Singapore was the size of our current allocation to sugar cane its 2016 GDP would have been around USD247 billion making it the 44th biggest economy in the world. Which makes the talk of the long-term viability of the sugar cane industry a massive strategic error.

A Few More Thoughts on the Budget

Given that our economy is not exactly creating that many jobs it would make sense to offer some kind of fiscal incentive to companies that are hiring Mauritians. A ban should also be imposed on many categories of foreign labour given the high unemployment and underemployment that we've been seeing for way too long now. It doesn't make sense to undercut people that are the most vulnerable. Plus given that any employed person no matter what his or her take-home pay is can conceivably be replaced by cheaper and more productive foreign labour should we then open all the floodgates and put every Mauritian out of a job? It's important that we have a look at pay ratios and consider a move to a shorter week like the Dutch so more Mauritians work.

The setting up of something like the Mauritius National Investment Authority (MNIA) is long overdue. Part of the Investment Committee of the NPF could be considered as potential board members of the new authority who would provide the overall governance of the institution. The investment committee of the MNIA has to be staffed with sharp investment professionals that work there full-time within a modern organisational structure. The MNIA might want to consider adopting the Standards of Practice Handbook of the CFA Institute as its compliance manual. 

It's not a bad idea that we have a go at developing some of our own R&D. But it makes a lot more sense that we use many of the tools and ideas that have been developed elsewhere for decades now. We'd go a lot faster.

Structured after-school activities is a good idea so we end up with more healthy individuals and therefore put less stress on our health system. It would be an even better idea if exams at all levels were non-cumulative. This would reduce rote learning and allow a more interesting exploration of the massive knowledge that humans have codified over the last fifteen or so years. Making school more relevant at the same time. And fun too.

So

The Sithanen flat tax has broken our economy. We would have been able to do a lot more in every possible field. This includes heavier strategic investments in the port, the airport, our energy system and elsewhere. The 5% solidarity levy is a step in the right direction. But it's too small a step. The Minister should definitely consider doubling it to help Mauritius get out of the big lull she's been in for a decade now. Replacing the Metro Express with the BRT and a fleet of fish trawlers would be a wiser decision. Likewise our car pool cannot keep on increasing like this. We are obviously not paying enough attention to a lot of important things. That's easy to fix. We just need to bring on board all these skillful but unemployed Mauritians that are more than ready to contribute. And morph into customers.