Tuesday, November 5, 2013

15% Flat Tax is Enemy of Good Growth

Bean-counters' answer to their own manufactured lie was a promise of robust growth rates if we reduced taxes by 50%. That -- as expected -- didn't happen. They said well it's because of the financial crisis. Not really, the mess we're in was hatched in Mauritius: our economy didn't rebound in 2010 when the rest of the world did. Besides 57 countries had better growth rates than us in the first three years of the reforms -- which include, by the way, the years of 'early harvest' and 'bumper crop'.

But government has collected more revenue they say. Its revenue can increase if you have higher growth rates, better collections or if you are ripping us off with unreal prices. There has been better collections -- this can happen irrespective of tax rates -- but they did not make up for the shortfall caused by the string of ridiculously low growth rates of the reform vintage. Which is in any case what the PBB circulars have been telling us year after year. One is mostly a one-off thing, the other a cancer that spreads rapidly. You can find that out by recomputing the revenue government collected minus the stupid things (hedging billionsabusive energy prices, making SMS more expensive, high internet prices, wider-than-necessary interest rate spreads, etc). And have a look at the servicing of our debt and its structure for some additional clues that we need to add a couple of higher tax brackets on budget day. Having a good look at recent shutdowns of the US government is also not a bad idea.

And if unemployment has stayed stuck above 10% since the reforms began is it because our people don't have any good skills or is it because there are too many poverty-pay jobs on offer? And because the floodgates of stupidity have been opened? And no, we cannot increase productivity forever in one activity. We need to do other stuff. And use a range of tax rates to make intelligent bets.

Finally if our trade relationship with the rest of the world is unbalanced is it because we're not exporting enough or because we are importing things that we don't really need?


akagugo said...

As confirmed by Manou, but not to the taste of local economists.
Nul n'est prophète en son pays, hein?

Sanjay Jagatsingh said...

"Nul n'est prophète en son pays, hein?"

One of the silliest saying I know. In fact it applies pretty well to periods of time where countries are backward-thinking.

Sanjay Jagatsingh said...

Is a tinge of apartheid heading our way? Wealthy Mauritians should also be allowed in. But definitely not those from income groups who can't afford to lose their household budget in one spin of the wheel.

How a government raises taxes is crucially important. What is better a few additional tax brackets or tax receipts from the gaming industry that are rising essentially because retail operations are sucking the life out the more vulnerable segments of our population?

You want another proof that the flat tax did not work? Easy, MRA collections didn't rise in real terms last year.