He should have presented one early in January to put back corporate and personal tax rates on a sustainable and progressive path – raise maximum personal rates to 40% or more and the corresponding numbers for corporates not below 30% – because fourteen years of trickle-down economics were about to send our economy crashing into a wall. As chart 1 shows GDP for 2020 was expected to reach Rs530 billion before Covid-19 appeared on the scene instead of the Rs918 billion needed to keep the regressive tax code. That’s a shortfall of Rs388 billion. 2021 was supposed to be the year our GDP crosses the Rs1 trillion mark. That was not going to happen and our economic output would have still fell short of that milestone by a lot even in 2024. In fact the gaps between the two variables would have kept on increasing with GDP in 2024 less than half where the Sithanen flat tax had promised to bring it.
Rs78bn of Government Revenue
Missing in 2020, Rs89bn in 2021
These shortfalls can be translated into missing government revenue once we pick a reasonable number for the latter expressed as a percentage of GDP. Let’s be conservative and pick 20% - the actual budget estimate for 2020 is 23%. As chart 2 shows there was going to be Rs78bn of revenue missing in the government coffers this year if tax rates were not brought back to sustainable levels (the figure for 2019 is Rs67bn). This amount which is roughly 15% of our pre-Covid-19 2020 GDP could have been used to take our public health system to a whole new level. After it was seriously patched up. Weren’t we recently reminded by the President of the Renal Disease Patients Association that there are on average three dialysis machines in each dialysis centre that’s not operational?
A Second Budget in March
Then this month he would have presented a massive supplementary one to deal with the Covid-19 problem. A bit like what Singapore did. Instead Padayachy wasted precious time by putting the dumb and controversial Doing Business rankings (DB) on a higher pedestal. For sure he cannot talk about average growth rates of the past five years – the sole purpose of bringing tax rates to 15% was to get 8% growth rates but which we never did in any of these years – as they have been the lowest of the past thirty-five years. The snag is that as chart 3 shows changes in our DB are uncorrelated with our economic growth. And do we need to even bother calculating its correlation with the conditions in which several of our public medical staff are working to keep us safe from the pandemic?
