Reacting to the PM’s useless comments on pension, another ex-PM rushed in to clamour for his right to be included among the pension populists - he doubled the universal old-age pension in 1996. But he was not just satisfied with being acknowledged among the pension populist stalwarts, he tried to rope in, on his side, another ex-PM- PRB- in his criticism of the failed introduction of targeting for the BRP in 2004.
As far as I remember, the MMM has always owned up to the targeting of the BRP in 2004, that is limiting the old-age pension to those above a certain income threshold (means-testing) with the aim of “enabling the state to support the financial burden of this long-term non-contributory pension.”(ref: Realisations 2000-2005, Bilan du gouvernement MSM-MMM 2000-2005)
At that time ,the International Monetary Fund (IMF) and the World Bank, were warning us that the BRP system - an unfunded system paid out of government funds - was becoming unsustainable -we would be going from spending two percent of GDP to eventually spending six percent of GDP on pensions
The MMM-MSM govt paid a heavy price for this daring but unpopular measure . The Labour Party used it against the MMM-MSM government, and it helped deliver victory to the Labour Party in the 2005 elections."That was quite a wake-up call for political parties," had commented Lindsay Collen of Lalit . It is thus not surprising that PRB has preferred to retain a low profile on this pension issue.
Since then , all our politicians have followed the same pension populist policies, turning our elections into auctions where they compete to be more generous than others to voters on pensions. The show now is already on preparing us for the forthcoming elections . Besides pension, we will have now some competing pleasing packages and a generous scattering of handouts for our senior citizens -“ trips to La Reunion”, “ trips to Diego, Tromelin or Agalega, if the latest negotiations succeed. If not, then trips to China !
As highlighted in the working paper “Pension Reforms in Mauritius: Fair and Fast— Balancing Social Protection and Fiscal Sustainability”, the failed attempt at targeting in 2004 was due to that the benefit went from 100 percent to zero above a certain threshold, which distorts incentives around that threshold and was perceived as being unfair. A gradual phasing out of the benefits could have addressed this problem but cannot be expected to yield significant savings on pensions. Other parametric reforms, particularly those related to increase in the eligibility age and the way pensions are indexed, can also be effective in containing generosity, accompanied by such social assistance programs as to protect the vulnerable groups and not increase poverty rates.. This phase-wise reform would have helped to contain the explosive path of expenditure projected in the BRP and its impact on fiscal sustainability.
But many of our leftist friends, especially the welfare state vigilante, who continue to champion the strategy of universalism (which is not necessarily superior to more particular approaches) object to such targeting . Targeting sometimes comes at a cost to the poor. Administrative costs may escalate, political support may vanish, and behavioral responses may add costs to targeted interventions. Targeting, they are convinced, is usually faced with formidable administrative hurdles. In a World Bank study (Coady et al. ) of 122 targeted anti-poverty interventions in 48 countries, the authors conclude that while the median programme transfers 25 per cent more to individuals than would be the case with universal allocation, a “staggering” 25 per cent of programmes are regressive. Available figures show that the median targeting programme in sub-Saharan Africa transfers 8 per cent less to poor individuals than a universal programme. Moreover, we have stigmatization that comes along with such targeting methods.
"Benefits meant exclusively for the poor often end up being poor benefits.” (Sen 1995). Fine targeting, it is pointed out, often leads to some kind of inequality such that the poor in one area or community might benefit more than the poor in non-targeted areas/communities. Such inequality can be explosive politically and is often the basis of ethnic conflicts. So, in the name of consistency, our leftists favour universalistic social policies because they are less bureaucratic, cumbersome and more market conforming.
Our welfare state reformists counterargue that the over-burdened bloated public sector, with its whole gamut of free social services and social welfare programmes is collapsing under its own weight and no longer reaching the people they were meant for. Our welfare state is under pressure. Ageing and the collective welfare schemes make public finances unsustainable in the future, both in financial terms and in terms of social legitimacy. (in the absence of a more progressive tax system and a wealth tax)
We have to get rid of our excess luggage, scrap off our excess fat, streamline or dismantle the existing social system . What has been the impact of the redistributive policies ? Are these progammes cost-effective? Can the fragmented amalgam of uncoordinated social programmes announced in successive budgets survive scrutiny ? Is there an effective monitoring and evaluation system that we, including the policy-makers and voters, can rely upon to justify our continuous support of such programmes?
Some time back, one of the IMF Article IV documents had noted that “… the social insurance payments exceeded 4 percent of GDP, including over 1.3 percent of GDP for the basic retirement pension scheme. However, almost 40 percent of the basic retirement pension benefits go to the richest 20 percent of the population. Only about 24 percent of direct and indirect beneficiaries of social protection programs are poor. The poor receive only about 13 percent of total social protection payments. Estimates from the latest household survey indicate that the two richest quintiles of the population (top 40 percent) receive close to 58 percent of all social protection benefits and the richest 20 percent receive about 37 percent of all Benefits.”
They have enough of evidence to show that most of our redistributive social policies have been captured by the better-off consumers from the middle and rich classes. Do these social progammes really help the poor?
Subsidies for items of middle class consumption, for example on LPG, rice and wheat, contribute to the fiscal deficit, and thereby to inflation which is a crushing burden on the poor. This amounts to a betrayal of the very downtrodden sections of people that the redistributive social policies claim to cater for. And we talk of fiscal responsibility in our AC offices , eating dholl puris and rotis made from subsidized flour and dropping our kids in our duty-free cars for their private tuitions that have become indispensable for a free education system and its wasteful free transport, turning out to be huge liabilities for the country. How can we thus expect to find resources for underprivileged (ZEP) schools and for a robust and ambitious vocational education?
Direct intervention in the form of education, vocational training, health care, HRD, nutrition for children and pregnant mothers, sanitation, shelter for all and old-age homes for the destitute, etc., would have a direct impact on the poor’s well-being and growth. The redistributive policies have paid little attention to such important development issues as well as those which actually matter to the poor. These policies need more of single-minded focus on issues that are affecting the marginalised sections of society, instead of providing general transfers that include elite economic issues to the exclusion of pressing social problems.
Reforming the Welfare State or creating a more modern and affordable structure before the old edifice falls into total disrepair—Mauritians are learning that this is even harder than building a Welfare State.
We cannot expect these bunch of politicians to be serious about a bold reform of the pension system that would have secured less drastic future changes and fairer outcomes. But with the projected decline in the workforce and an increase in dependency ratio, the increase in pensions spending will pose fiscal risks or crowd out other priority expenditures. Sooner or later, we will have to confront the hard choices that we have not prepared ourselves for.
