Friday, December 4, 2009

Sithanen's New Model is Actually Old Crap

Here's how the Doctor's special medicine was supposed to work: cut tax rates sharply and you'll get growth rates that will be so robust that you won't need to reduce any government expenditure to balance your books -- Laffer, according to Krugman, incidentally promised that revenues would increase. For example Federation 2 produced average growth rates of 4.33% when taxes were about 25-30%. Now if you cut tax rates by about 50% by flattening the tax structure you obviously need much higher growth rates to compensate for the now-lower tax rates. Makes sense, right?

The snag is that with the tax rates flat at 15% Sithanen only managed to deliver average growth rates of 4.32%. That's the worst performance in 25 years in case you're wondering. Trouble is that's too little growth for a 15% tax rate (his growth rate is already lower than that of Federation 2). Which would explain why he came with special levies on bank profits for two straight years and a funny 2% contraption called CSR. And why he's been budgeting billions without actually spending them. He's also been borrowing like crazy specially in foreign currency while telling us at the same time that he's fought hard to prevent Mauritius from going into the ICU of the IMF.

When the supply-side crap was first tried in the US -- top tax rates fell from 36.5% in 1980 to 26.7% in 1989 -- robust growth never arrived causing the Federal debt to increase from a little less than $1 trillion to $4 trillion from 1981 to 1992. What it did produce was a lot of inequality and a lot of poverty. Doesn't that sound familiar?


Anonymous said...

The audit report released on Tuesday confirms your last paragraph. They will not be able to say afterwards that you did not warn them.
Also why is it that Ramgoolam did not pick you all these years to give him some good advice?

akagugo said...

Let's see how Trumponomics does to record low unemployment and profits for large corporations, only 6 months on.