Sunday, August 9, 2015

Four Reasons Top Taxes Are Too Low

One is obviously the low growth rates that Mauritius has clipped for the past few years: indeed 2015 is looking to be the 5th consecutive year that it will be under 4%. I don't think this has ever happened. At least not since independence. I am sure you remember that one bean-counter promised Bretton Woods-inspired robust average growth of 8% back in 2005. Which was the reason the tax structure was flattened.

Two is that tax receipts have literally stayed flat in real terms over the last 12 months. Indeed the MRA disclosed that it collected only 4% more in the last fiscal year. Which roughly matches the increase in the general level of prices. We've alluded to that before.

Three the MCCI said that more than a third of the businesses it surveyed recently are complaining that Government is not doing enough to improve their businesses. Well, with the silly flat tax Government has ensured that it would have less resources -- and the private sector would have more -- to drive the economy. If nothing much has happened and is going to happen Government should raise top taxes to move Mauritius forward. If we don't want to keep on waiting for Godot.

Finally the flat tax has increased inequality tremendously. You just need to compare the number of people thrown into poverty after Navin Ramgoolam's first and second mandate. We can also have a look at how real disposable income has changed for the richest and poorest 10% of our households for the same periods. That's pretty bad for our social fabric and for better economic growth.

There is of course another reason why top taxes should increase.


Parz said...

not related to taxes,but might be of interest

"Economies naturally grow. People innovate as they go through life. They also look around at what others are doing and adopt better practices or tools. They invest, accumulating financial, human and physical capital.
Something is deeply wrong if an economy is not growing, because it means these natural processes are impeded. That is why around the world, since the Dark Ages, lack of growth has been a signal of political oppression or instability. Absent such sickness, growth occurs.”
– Adam Posen, “Debate: The Case for Slower Growth”

Sanjay Jagatsingh said...

If VAT receipts on oil doubled in a single year you can imagine why the STC apparently lost billions hedging in 2008 just when oil prices collapsed. Now given what I've said in this post if pump prices reflected current market conditions tax receipts would probably have fallen even in nominal terms. How you tax matters.

akagugo said...

Reduced tax bills is akin to state aid: that's what the EU ruled and was found to be unlawful, no less.
Now, what was the result of aiding all our local corporate bodies for all these years?

Sanjay Jagatsingh said...

If a former head of the civil service is starting to say stuff like this you can have an idea of the mess we're in.

Business Mauritius has replied but it is not exactly convincing.

Sanjay Jagatsingh said...

Here's one who wants Government to invest more. Well with the flat tax the private sector was supposed to invest a lot more than they used to with progressive taxation. Did it? What we know is that its share of the GDP shortfall is around Rs740 billion.

Sanjay Jagatsingh said...

Thursday joke: "quand il y a un ralentissement, le gouvernement met en place des projets d’infrastructure publique pour stimuler l’économie afin qu’entre-temps".