The Pseudo-Socialism behind the NIT

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The government’s Negative Income Tax (NIT) on first glance seems like a bit of a contradiction. After all, this is the same government that, in 2015, introduced the ‘love bridge’ and ‘parrianage’, i.e. Dickensian paternalistic charity to combat poverty. Their acolytes promote wage suppression, directly as in the case of Air Mauritius with disastrous results, or indirectly via lowering the repo rate twice to get the rupee to depreciate thus pauperising everybody. A hunger strike by cleaners earning Rs1,500 a month is treated dismissively. But lo and behold, out of the blue, and with much razzmatazz, comes the NIT that puts money into the pockets of the very poor. Sounds contradictory, does it not?

Except it’s not a contradiction. The NIT, despite appearances, falls very neatly within this ultra-capitalist pattern. For one thing, an NIT, by making up for poverty wages out of public funds, actually disincentivises raising wages. Why would a company raise the wages of those at the bottom when the state would simply swoop in and make up the difference? An NIT also militates against the logic of a minimum, liveable wage: no doubt the NIT would be used to low-ball whatever final minimum wage is decided and, in the future, the existence of the NIT would be used to justify resistance to raising that minimum wage. In the end, why would the government feel pressured to do so if it can throw a few crumbs to those at the bottom via the NIT? In fact, an NIT is very much at home in a low wage economy. The poorest would get a few scraps via the NIT to keep them alive, while wage suppression could continue everywhere else uninterrupted. That’s the charm that the right-wing economist Milton Friedman saw when he came up with the idea. In fact, he posited the NIT as an alternative to the minimum wage and the welfare state. It’s not hard to see why.

But, in Mauritius, the ugliness of the NIT is even more enhanced. The system depends on cash transfers out of state taxation revenue. But where will the money come from for the Mauritian NIT? Here’s the rub. The Mauritius Revenue Authority in 2015 earned the bulk of its revenue via the Value Added Tax, which is financed primarily by consumption by middle class and poor households. In fact, the VAT made up 41 per cent of all tax revenue in the country. In contrast, corporate taxation was just responsible for 14 per cent. Seen from this point of view, the NIT looks less Robin Hood and more Sherriff of Nottingham: the rich are allowed to keep wages low and the government poses as socialist by dipping into the pockets of an already embattled middle and working class. Everybody wins: except the less well-heeled, of course. No doubt the Finance Ministry must be rubbing its hands with glee that nobody seemed to notice its sleight of hand.

Doesn’t sound like much of a contradiction now, does it?

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