Why put the cart before the horse?

16 mars 2024, 09:32


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Why put the cart before the horse?

The decision taken by Pravind Jugnauth to announce a pension of Rs13,500 for everyone aged between 60 and 89 starting next month, ahead of the 2024-2025 Budget – the last budget of his term – raises eyebrows. Is it possible that electoral matters are now accelerating following the departure of the President of India? Would the Prime Minister have risked overshadowing the Budget speech, which is under preparation, with such an announcement – a move costing over Rs8 billion per year – if he didn’t have an ulterior motive?

As the country continues to face strong inflation, the “labous dou” approach of the Pravind Jugnauth-Renganaden Padayachy duo to restore some purchasing power is unanimously applauded by unions and timidly criticized by an opposition – that will have no choice but to follow suit –, as well as by some employers and economists with a clear eye on the upcoming elections.

With the universal pension set at Rs13,500, the government signals a shift towards favoring workers after the MIC initiative, asserting that the cost of over Rs10 billion plus Rs8.4 billion (to cover the pension increase) is more of an “investment” than a special bonus or a one-off event.

As of January 2024, the minimum wage has been raised to Rs18,500 – a significant jump from the paltry sums paid in the private sector before the introduction of a minimum wage. Over six years, the government of Pravind Jugnauth is pleased to report, wages at the lower end of the scale have increased by more than 160%. This nominal increase significantly impacts many companies’ treasuries, to say the least, as we await the revelation of a magical support formula.

In the meantime, let’s consider the political act over the economic act, since both sides of the coin are intertwined. The decision to increase the minimum wage, to introduce the CSG, to increase BRP and to provide universal salary compensation raises questions about long-term economic repercussions. Yet, Padayachy remains unfazed, much to his detractors’ chagrin.

Is the government’s initiative a double-edged sword? While it provides short-term financial relief, it could burden small and medium enterprises, leading to price increases and inflation. Those earning above the minimum wage now expect a quick restoration of wage balance – the so-called difference in income – leading to new increases announced by the National Wage Consultative Council within three months.

If unchecked, this policy of raising wages from the bottom could spiral out of control, stifling competitiveness, affecting the productivity of middle management, discouraging investment, resulting in job losses, economic stagnation, and increased debt. As often stated in these columns, politicians tend to favor immediate gains over long-term stability, focusing on popularity-ensuring measures and re-election. Such shortsighted strategies overlook the profound economic impacts, as highlighted by journalist-economist Frédéric Bastiat, who emphasized the importance of considering both the visible and hidden consequences of economic actions.

One must ask: does true progress lie in pursuing economic growth rather than purely egalitarian measures that fail to challenge our tepid productivity? Has this question evolved post-Covid-19 or due to other external factors like armed conflicts? The real drivers of improved living standards remain increased production and technological advancements. Or is it necessary to restore hope to workers to curb the emigration trend and thus secure the pension funds that will burgeon with our demographic and economic realities?

In navigating these turbulent waters, the balancing act between providing immediate economic relief and ensuring long-term stability becomes paramount. As policy makers strive for popular approval before the legislative election, they must not lose sight of their responsibility to foster sustainable economic growth. True progress demands a nuanced approach, blending short-term relief with strategies that promote innovation, productivity, and ultimately, a resilient economy capable of supporting its aging population without sacrificing future generations’ prosperity or willingness to work, live and play in Mauritius...