There are many commentators, opportunists, economists and politicians who are jumping on the bandwagon to oppose the current pension reform. They are quite quick in offering ready-made solutions like a new social contract and assurances that the country can finance its present social model by creating new wealth or through higher growth.
There are some flaws in these arguments . The Mauritian economic model is at a major crossroads. What exactly is the Mauritian economic model? it is a liberal welfare state or a low tax liberal economy with a welfarist system grafted to it. Over time , it has metamorphosed into an unbalanced dual economy with two starkly different visions:
-𝙊𝙣 𝙤𝙣𝙚 𝙨𝙞𝙙𝙚, u have the “Low tax liberal economy , growth-first model” whose advocates are for a pro-business environment that favors our local conglomerates in coalition with the bureaucratic elite. Since Independence and until recently, they’ve maintained our model’s long-term financial viability by ensuring that annual budgets lean in their favour and assuring that the treasury maintains fiscal discipline and is not saddled with the rising cost of a too generous welfare state.
Over the years, some of these status quoists succeeded in convincing most of us that some meaningful welfare trimmings were inevitable if we want to preserve our neoliberal “way of life”.
-𝙊𝙣 𝙩𝙝𝙚 𝙤𝙩𝙝𝙚𝙧 𝙨𝙞𝙙𝙚, the egalitarian, welfarist model: Proponents of this historical Mauritian social contract—free education and healthcare, universal basic pensions, and targeted social aid- have been fighting to protect the vulnerable groups and preserve social dignity by demanding more welfarist measures, given the growing inequality and relatively deteriorating living conditions.
And for years, the government’s fiscal strategies have sought to reconcile two seemingly contradictory goals: fostering a pro-business economy characterised by a highly attractive, tax-competitive and rent-seeking environment while simultaneously rolling out measures to safeguard purchasing power and preserving investments in the welfare state and in human capital development. But it has been mainly at the cost of welfarist model reflected in greater wage inequality and the gradual deterioration and dismantling of the welfare state. Indeed, over the years, the grating of the welfare state on the liberal economy was unquestionably being trimmed.
We’ve reached a critical juncture for the Mauritian economic model which is presently facing significant structural strains. Achieving the right balance under this current model is exceptionally difficult and the government’s usual approach won’t suffice. The cosmetic tax adjustments and ongoing welfare cuts won’t resolve the situation. 𝗢𝘂𝗿 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗺𝗼𝗱𝗲𝗹 𝗶𝘀 𝗳𝗮𝗹𝘁𝗲𝗿𝗶𝗻𝗴, 𝗴𝗶𝘃𝗶𝗻𝗴 𝗶𝘁𝘀 𝗳𝗶𝗻𝗮𝗹 𝗴𝗮𝘀𝗽𝘀 𝗮𝘀 𝗶𝘁 𝗵𝘂𝗿𝘁𝗹𝗲𝘀 𝗱𝗼𝘄𝗻𝗵𝗶𝗹𝗹 𝘁𝗲𝗲𝘁𝗲𝗿𝗶𝗻𝗴 𝗼𝗻 𝘁𝗵𝗲 𝗯𝗿𝗶𝗻𝗸 𝗼𝗳 𝘀𝘁𝗮𝗴𝗳𝗹𝗮𝘁𝗶𝗼𝗻. This is due to exceptionally high budget and current account deficits- without the support of GBCs- and soaring public debt stemming from structural failures in both public governance and private incentives. When the bureaucratic elite operates without accountability and the private sector avoids risk in favor of rent-seeking, economic stagnation is inevitable.
There are only two ways out —
a) revive the model to its earlier more liberal and less egalitarian state – no question of excessive taxation – by severe cuts to essential social transfers, downsizing bloated public entities and reducing overall public spending.
b) jettison it for a less tax-centric one, not focusing on growth in the short term, but on being more sustainable, more egalitarian .
𝑾𝒉𝒚 𝒔𝒉𝒐𝒄𝒌 𝒕𝒉𝒆𝒓𝒂𝒑𝒚 ?
Because the only way that the liberal low tax economy can regain full momentum again, all engines roaring at full speed, is through unavoidable structural reforms like the pension reforms-reforms focussed on curbing recurrent expenditures leading to a gradual dismantling of the welfare state to a "residual welfare state".
𝑾𝒉𝒚 𝒊𝒔 𝒕𝒉𝒊𝒔 𝒕𝒉𝒆 𝒐𝒏𝒍𝒚 𝒐𝒑𝒕𝒊𝒐𝒏 ?
Given the current lacklustre GDP growth of 2.5%, the country needs to invest more in AI, energy, the port sector, education and HRD to become more productive. It cannot continue with budgetary capital spending averaging 1.5% to 3% of GDP over the last two decades, or even more.
Past remedies won’t suffice. Emerging from this crisis demands shock therapy: substantial cuts to recurrent public expenditures including social transfers to generate enough of fiscal space for higher capital spending of some 5-7% of GDP. 𝙏𝙝𝙞𝙨 𝙬𝙤𝙪𝙡𝙙 𝙞𝙣𝙚𝙫𝙞𝙩𝙖𝙗𝙡𝙮 𝙧𝙚𝙨𝙪𝙡𝙩 𝙞𝙣 𝙨𝙤𝙘𝙞𝙖𝙡 𝙪𝙣𝙧𝙚𝙨𝙩.
𝑻𝒉𝒖𝒔 , 𝒕𝒉𝒊𝒔 𝒍𝒆𝒂𝒅𝒔 𝒖𝒔 𝒕𝒐 𝒕𝒉𝒆 𝒐𝒕𝒉𝒆𝒓 𝒘𝒂𝒚 𝒐𝒖𝒕- 𝒂 𝒈𝒓𝒂𝒅𝒖𝒂𝒍 𝒂𝒏𝒅 𝒔𝒍𝒐𝒘 𝒃𝒖𝒕 𝒂𝒓𝒅𝒖𝒐𝒖𝒔 𝒔𝒉𝒊𝒇𝒕 𝒕𝒐 𝒂 𝒎𝒐𝒓𝒆 𝒔𝒖𝒔𝒕𝒂𝒊𝒏𝒂𝒃𝒍𝒆 , 𝒎𝒐𝒓𝒆 𝒆𝒈𝒂𝒍𝒊𝒕𝒂𝒓𝒊𝒂𝒏 𝒎𝒐𝒅𝒆𝒍.
(Those who aren’t hinting at a new economic model but instead hide behind the vacuity of either a so-called new social contract will still have to face the economic choice of a more liberal and unequal economy or a more egalitarian welfare state. )
𝑶𝒖𝒓 𝒄𝒐𝒏𝒄𝒍𝒖𝒔𝒊𝒐𝒏 𝒊𝒔 𝒕𝒉𝒂𝒕 𝒕𝒉𝒆 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒎𝒐𝒅𝒆𝒍 𝒊𝒏 𝒊𝒕𝒔 𝒑𝒓𝒆𝒔𝒆𝒏𝒕 𝒔𝒕𝒂𝒕𝒆 𝒘𝒐𝒏’𝒕 𝒃𝒆 𝒂𝒃𝒍𝒆 𝒕𝒐 𝒈𝒆𝒏𝒆𝒓𝒂𝒕𝒆 𝒎𝒐𝒓𝒆 𝒘𝒆𝒂𝒍𝒕𝒉 𝒐𝒓 𝒂𝒄𝒉𝒊𝒆𝒗𝒆 𝒉𝒊𝒈𝒉𝒆𝒓 𝒈𝒓𝒐𝒘𝒕𝒉 𝒘𝒊𝒕𝒉𝒐𝒖𝒕 𝒔𝒊𝒈𝒏𝒊𝒇𝒊𝒄𝒂𝒏𝒕 𝒅𝒓𝒂𝒔𝒕𝒊𝒄 𝒓𝒆𝒇𝒐𝒓𝒎𝒔 𝒇𝒐𝒄𝒖𝒔𝒆𝒅 𝒐𝒏 𝒔𝒖𝒃𝒔𝒕𝒂𝒏𝒕𝒊𝒂𝒍 𝒄𝒖𝒕𝒔 𝒕𝒐 𝒔𝒐𝒄𝒊𝒂𝒍 𝒃𝒆𝒏𝒆𝒇𝒊𝒕𝒔.
𝑩𝒖𝒕 𝑳𝒆𝑷𝒆𝒑 𝒊𝒔𝒏’𝒕 𝒘𝒊𝒍𝒍𝒊𝒏𝒈 𝒕𝒐 𝒑𝒂𝒚 𝒕𝒉𝒆 𝒉𝒆𝒂𝒗𝒚 𝒑𝒓𝒊𝒄𝒆 𝒇𝒐𝒓 𝒓𝒆𝒗𝒊𝒗𝒊𝒏𝒈 𝒕𝒉𝒆 𝒖𝒏𝒆𝒒𝒖𝒂𝒍 𝒍𝒐𝒘-𝒕𝒂𝒙 𝒍𝒊𝒃𝒆𝒓𝒂𝒍 𝒆𝒄𝒐𝒏𝒐𝒎𝒚. 𝑯𝒆 𝒊𝒔 𝒉𝒂𝒗𝒊𝒏𝒈 𝒔𝒐𝒎𝒆 𝒅𝒐𝒖𝒃𝒕𝒔 𝒂𝒃𝒐𝒖𝒕 𝒕𝒉𝒆 𝒑𝒓𝒐𝒎𝒊𝒔𝒆𝒅 𝒏𝒆𝒐𝒍𝒊𝒃𝒆𝒓𝒂𝒍 “𝒘𝒂𝒚 𝒐𝒇 𝒍𝒊𝒇𝒆”-𝒕𝒉𝒆 𝒏𝒆𝒐𝒍𝒊𝒃𝒆𝒓𝒂𝒍 𝒖𝒕𝒐𝒑𝒊𝒂 !
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