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 billions, abusive 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?

STC Hedging Mess is Rs1.7 Billion Bigger

So we were told a few weeks ago. That's 57% more than the huge Rs3 billion figure supplied in Parliament two years ago. And quite fishy too because the STC doesn't have any price risk to manage: it just passes it on to us through the APM. Besides, two years that's an awful long time for so many eyes to be fooled.

My hunch is that the STC never had any billion-rupee hedging losses but that we were forced to pay abusive gas prices to make up for the fiscal shortfall created by the Sithanen-Mansoor's flat tax experiment given that the proverbial robust growth rates never arrived. 

This aspect of Shaitanomics has already played a part in preventing us and our economy from participating in the global rebound underway by making a dent in our overall competitiveness. And Pravind Jugnauth's intention of increasing excise duties on petroleum by 10% will make sure it will have another one to play in keeping us in our economic slumber. He should instead increase the special levy on banks or nudge corporate taxes upwards.

All of this doesn't look good for Mo Ibrahim's poster child for governance, does it?

Why the Poor and the Middle-class Will Not Rebound When the Recession Ends

Simply because it wasn't the global recession that threw them into the recession back in 2006. Nope. It was Sithanen and his university buddy Mansoor implementing Bretton Wood policies that any Prime Minister with two-and-half grams of good taste would have abhorred.

Reform or Rebound?

Ramgoolam bragged quite a bit about that 9.7% growth rate while he was the now-we-know loyal Leader of the opposition. Nothing spectacular really happened in 2000 except perhaps the most foolish way for any of our Prime Ministers to lose power. For something out of the ordinary we need to backtrack one year when a 1-in-every-40-years drought showed us how inadequate infrastructure could cut our usual 5% average growth by 60%. In other words the impressive clip at which the economy surged back in 2000 had nothing to do with Ramgoolam: it just rebounded.

In 2006, we similarly returned to an average performance mostly because the textile industry started to grow again after contracting and consolidating for a few years (more than 25,000 jobs were shed during that period). In fact the rebound in that particular industry accounts for over 50% of the 2.7% increase in the GDP growth rate. So that has nothing to do with the so-called reform of Sithanen: the economy simply bounced back.