Will 2024-25 Budget Measures Reduce Inequalities?

In his 2024-25 Budget speech, the Minister of Finance, Renganaden Padayachy, highlighted social resilience as a key priority. The measures aimed at reducing inequalities have been met with skepticism, with many questioning whether they will effectively address the issue. The economist, Vinaye Ancharaz, examined the impact of these measures on social and economic inequalities in below interview by Defi Media.

Firstly, it is essential to define what inequality means. The Minister of Finance has introduced a historic allocation to promote equality of opportunities, providing a sum of Rs 2,000 to each household earning less than Rs 20,000 per month.

While this is a welcome measure, it is not enough to address the root cause of the problem.

Mauritius is heavily reliant on imports, and tackling imported inflation and devaluation of the rupee would be a more effective solution. However, the Budget has not proposed any measures to mitigate these issues.

The announced measures aimed to control the prices of medicines and reduce the cost of fuel, but these are palliative measures that will have a short-term impact on eroding purchasing power.

The structure of salaries within companies is also set to be overhauled, with potential repercussions for the economy.

The Minister of Finance has chosen to manage the loss of purchasing power by injecting more money into households.

The revision of the minimum guaranteed income and the Basic Retirement Pension (BRP) and a series of allocations reflect this approach.

This injection of liquidity into the money supply will lead to a surge in prices and inflation, which will in turn fuel the inflationary spiral.

The government will collect taxes on inflation and social security contributions, which will partly fund these social measures.

However, there are concerns about the sustainability of these measures and their potential impact on productivity.

The revision of the minimum guaranteed income from Rs 11,000 to Rs 16,500 and then to Rs 20,000 will likely have a positive impact on productivity.

However, there are concerns about the psychological impact of this new salary structure on employees. The message sent to employees is that effort and education are no longer necessary.

This could lead to frustration among employees and exacerbate the risk of brain drain. The measures aimed at reducing inequalities may actually increase injustice.

Furthermore, the structure of salaries within companies will be disrupted, leading to increased operating costs and reduced competitiveness for businesses.

In conclusion, while the measures aimed at promoting social resilience are welcome, it is essential to critically evaluate their impact on social and economic inequalities.

The government could also consider alternative solutions to address the root causes of inequality, such as tackling imported inflation and devaluation of the rupee.

Source: Defi Media