"The Abuse Needs To Stop”

Interview: Kugan Parapen, Economist

‘What the population really needs is a reduction in the level of taxes levied upon petroleum prices, not a commitment to reduce price levels’

* ‘The MSM government will not entertain a reduction in taxes on the price of petrol because they are addicted to these taxes’

* ‘Employees are almost never fully compensated for their loss in purchasing power in any year!’

* ‘Mauritius deserves to witness a new era of democracy. A scattering of the opposition forces will likely jeopardise this ambition’

KuganParapen, as economic spokesperson for Rezistans ek Alternativ, often provides a mind-provoking outlook on these questions and on our democratic setup more generally. His is the face that has articulated the most the necessity to move away from our current failed economic model to a new one. On the broader issues of governance and democratic space he believes, like many, that a red line has been crossed with the Kistnenmurder in a regime that has progressively eroded all institutions and processes to the point of collapse. The Opposition he posits cannot miss the opportunity for fundamental reforms through a scattering of their forces.

Mauritius Times: It has been speculated that this year’s negotiations between employers and unions over wage compensation might be the last such exercise that the current government would be called upon to arbitrate during its present mandate, and its political agenda until what remains of its mandate would therefore weigh heavily on what will eventually come out of the negotiations. Does that sound plausible to you?

KuganParapen:Speculation abounds in Mauritius, especially when it comes to politics. Judging by the sheer amount of road works mushrooming around towns, it would seem that the municipal elections are probably behind the door. But then again, a year is a very long time in politics.

* Do you see the government in a position to finance such a political agenda – at least through the award of a popular wage compensation… for a beginning?

As an economist, I would probably like to emphasise upon the fundamentals of wage compensation before moving on to its political tainting.

First of all, it should be noted that wage compensation is an ex-post process rather than an ex-ante one – that is the working class receives a wage adjustment to compensate for a loss of purchasing power that has already happened in the past rather than a compensation for a loss of purchasing power that will happen in the future.
With this in mind, the wage compensation process can be a factual exercise as all the necessary parameters are known to all. Would it not be in the interest of all parties to find an agreement upon a methodology to calculate the wage compensation amount? Having the government decide somewhat arbitrarily upon the quantum for compensation opens the door for bias. Theoretically, it can be to the detriment of either side, that is the employers or the employees. In reality, it is almost always to the detriment of most employees.

In recent memory, the wage compensation has almost always been a figure, never a percentage. And this is a major issue, let’s see why. Every year, government officials praise themselves in that they have been able to fully compensate those at the bottom of the ladder. They usually refer to the wage compensation amount being equal to the loss in purchasing power.
For the sake of an example, let’s say that the annual inflation rate is 5%. That is roughly equivalent to an increase of Rs 500 in cost of living for someone earning Rs 10,000. The government would then announce a blanket wage compensation of Rs 500 for all employees, irrespective of their income. By doing so, they do effectively compensate those at the bottom of the ladder but this is certainly not the case for all those earning more than the minimum wage.

Based on official numbers, in 2022, more than 7 out of 10 employees in the private and public sector combined earn more than Rs 12,000 per month, and nearly 4 out of 10 employees earn more than Rs 20,000 per month. These employees are almost never fully compensated for their loss in purchasing power in any year!

We have crunched the numbers, and it is not a pretty one. Over the last five years (2017 to 2022), an employee earning a monthly salary of Rs 20,000, has experienced a loss in purchasing power of 10%! And for those earning Rs 30,000 or above, the erosion of the purchasing power is at least 14%.

For 2022, the government has announced an increase of Rs 1,000 for all employees. While the initial reaction of many might be that it is a generous compensation, the reality could not be any further from the truth. After some 40 years of mostly moderate rise in prices, 2022 has witnessed the return of elevated inflation. For instance, the price of the average price for the basket of goods and services used for inflation calculation in Mauritius has risen by an eye-catching 10.7% in 2022 only.

Over the previous four years (2017 to 2021), the cumulative increase in the price of that same basket was also 10.7%. Can you imagine? We’ve experienced the same increase in the cost of living in one year (2022) as we did over the span of four years previously (2017 -2021). So where does the compensation of Rs 1,000 stand?

If we have a close look at the level of compensation paid over the period 2017 to 2021, the cumulative compensation awarded to employees by the government was Rs 1,575. And here we are in 2022 with a Rs 1,000 compensation figure. We shall let the reader draw his/her own conclusion.

From a wider perspective, the share of the wealth created that accrues to the proletariat has shrunk greatly over the last decades. Crony capitalism has many tentacles, and one of them has produced a hugely unequal world where the middle class is increasingly at risk of extinction. After all, we live in a world where the richest 1% own twice as much as the bottom 90%. And unfair wage compensation is far from being a total stranger to this sad state of affairs.

* According to the latest estimates of Statistics Mauritius,inflation for 2022 will reach 10.7% by the end of the year, and the consumer price index rose by 12.4 points from January to October, which means that households are having to spend more for their essential commodities. On the other hand, Finance minister has been saying that “2022 was the year of ‘recovery’”, adding that GDP, in real terms, will exceed the figure of 2019 and growth should be well over 7%. Is there a disconnect between these two perceptions of reality?

In a nutshell, economic growth can co-exist with inflation, even with the high levels of inflation we are currently experiencing. Let us not forget the existence of savings and of course that of our common friend, debt.

An economic philosopher once famously said that our modern consumerist economy is founded on three major pillars – marketing, debt and planned obsolescence. Firstly, marketing so as to create the desire for goods and services we do not necessarily need. Secondly, debt to enable the fulfilment of those desires and, finally, planned obsolescence to produce a recurrence of economic activity.

In this state of affairs, savings is the rich sibling of debt. In many ways, one turns to indebtedness when the piggy bank is empty. Many households have been sitting on a significant pile of savings post Covid-19 as the reality of social restrictions meant that many people could not live their consumerist life as they usually do. These savings are now being called upon as consumers dig deep into their pockets to maintain their lifestyles amid soaring prices. Is this sustainable? Certainly not, especially in a world where the level of indebtedness is at critical levels for the public sector, the private sector and households.

The case of Mauritius is quite unusual since its economic recovery post Covid-19 has lagged relative to many countries. Indeed, the reopening of the island’s international borders happened late last year and it is only this year that the hotel sector has resumed its activities on a scale comparable with the pre Covid-19 period. The country finds itself in a peculiar position where there is an ongoing economic recovery while the rest of the world is experiencing an economic slowdown. The international reality will unfortunately sooner rather than later catch up with the local economy. Read More… Become a Subscriber

Mauritius Times ePaper Friday 2 December 2022