Even if we assumed that the number of people claiming the basic pension remained constant, the Rs140 billion would be used up in 14 years. Thus, in the absence of an overhaul of the pension system, there won’t be enough money left to pay pensions in the future.

Minister of Finance Renganaden Padayachy sent shock waves down the spine of many people when he revealed that the fund of the Contribution Sociale Généralisée (CSG), which had replaced the National Pension Fund (NPF), was totally empty. His statement also created a lot of confusion and raised many questions. We talk to Vinaye Ancharaz, economist, about his views in layman terms about the whole polemic. We also seek his opinion on the Sythèses/l’express political survey published last week.

How do you reconcile the finding that Pravind Jugnauth is the “most performing” PM and yet his government trails behind the Labour-MMM-PMSD alliance in voting intentions (24.8% against 36%)?

The Contribution Sociale Généralisée (CSG) has been making the headlines since Minister of Finance Padayachy stated that the kitty is now empty. A lot of the debate around this has been rather technical for many people. Can you simplify it for the layman?

Let’s put the problem in context. The CSG was set up in 2020 to replace the National Pension Fund, which was being phased out. It is a payroll tax applicable to all employees regardless of their income tax liability. The CSG is deducted at source, that is, by the employer on the employee’s pay slip. Applicable CSG rates are based on a salary threshold of Rs 50,000 per month. Employees earning less than Rs 50,000 are subject to CSG at the rate of 1.5% while their employers pay 3%. Those earning a salary above Rs 50,000 pay CSG at the rate of 3%, with their employers paying 6%. The CSG applies to all employees. However, public sector employees were exempted from payment of the CSG between September 2020 and October 2021. After this period, the government announced that it would pay the CSG on their employees’ behalf.

Where is the problem? As long as someone pays…

The problem is: did the government actually pay? It’s like paying money out of your account and receiving it back into the same account! Besides, the CSG accentuates the divide between government and private sector employees. The fact that public sector employees do not have to pay the CSG is tantamount to a salary increase of 1.5% or 3% depending on the salary level.

Isn’t that good for the country as the public sector will be able to attract competent and able people?

In fact, that was the reason behind the PRB. But see where all those rounds of PRB pay increases have landed the public service! If you factor in all the perks – car allowance, passage benefit, vacation leave, etc. – that public sector employees are eligible to, salaries in the civil service may be vastly more attractive than in the private sector for like skills and experience. So, I don’t think that exempting government employees from the CSG was a move to attract talent into government – more so since, unlike the private sector, the public administration still values and rewards seniority (that is, years in service) over qualifications. I rather believe that it was a freebie handed out to a segment of the workforce that the ruling government sees as a vote bank.

NPF, CSG… what’s in a name?

The NPF was a fund – a piggybank. Money paid into the NPF was set aside and invested prudently to ensure that the money would be available to pay pensions when needed. The CSG, on the other hand, is not a fund.

But the money paid into the CSG is paid into the Consolidated Fund. Isn’t that a fund?

No. Contrary to its name, the Consolidated Fund is not a reserve fund but rather a sort of savings account into which the government receives its revenues and out of which it pays its current expenditure. CSG contributions paid into the Consolidated Fund are not specifically earmarked for social security payments. They are totally fungible and have been used for all sorts of spending. In the 2022-23 budget, for example, the government announced that it would pay an increase in the BRP of Rs1,000 and an income allowance to low-income earners out of CSG contributions. These expenditure items were labelled ‘CSG retirement benefit’ and ‘CSG income allowance’, respectively. The 2023-24 budget provided for the payment of a ‘CSG child allowance’. It is therefore hardly surprising that the Rs25.8 billion of CSG contributions collected to date have all been used up!

For a good cause?

If the CSG contributions were all spent on social protection, perhaps there would be less ground for criticism. But CSG money has been spent in other sectors too. Moreover, I don’t see any good in the mismanagement of public funds, which puts the universal pension system at risk.

But many economists have been saying for a while that the National Pension Fund (NPF) was unsustainable in the long run. Wasn’t it time to change it to the CSG?

Under the NPF, all employees (other than those of the sugar industry) paid 5% of their monthly salary as NPF contribution while their employers paid 8.5%. These rates are, on average, higher than the respective CSG rates, which leads us to wonder if the CSG is raising more money than the NPF did.

Is it?

Personally, I don’t think so. So, if the aim of the CSG was really to plug the gap in the NPF, it misses the target by far! The one difference between the NPF and the CSG is that CSG contributions can be spent on a recurrent basis while NPF contributions went to a reserve. This suggests that the real motivation behind the CSG was to just ensure that more money was available to spend. To brand the CSG as a reform of the pension system is misleading, dangerous and utterly irresponsible.

Whether it’s called NPF or CSG, isn’t the fact of the matter that we don’t have enough money in the kitty and that is the crunch of the matter?

Yes, we don’t have enough money in the kitty. However, with CSG, we have even less money than under the NPF, except that CSG contributions are at the government’s beck and call to meet its recurrent expenditure, including social security payments, whereas NPF contributions were not. With ageing, there will be more people claiming pensions and fewer people paying taxes, compromising the future payment of pensions. The dismantling of the NPF and its replacement by the CSG makes matters worse! In parliament, the minister failed to answer how future pensions will be paid given that there was no CSG money left in the kitty.

Where do you think the Rs140 billion of the NPF are gone?

We’ve learned that the total portfolio of the NPF and the National Solidarity Fund (NSF) amounted to Rs137.7 billion as of 31 December 2022, most of it in investment funds, bonds and foreign assets. The money is still there and, with the phasing out of the NPF, I suppose the government may resort to it to meet future pension obligations.

So where is the problem?

The problem is not now but in the longer term. Let us do a quick back-of-envelope calculation. According to Statistics Mauritius, there are 307,000 people receiving the universal pension, currently at Rs11,000. If the government were to make good on its electoral promise, it would have to increase the pension by Rs2,500 before December 2024. That would add Rs10 billion per year to the social security bill. At this rate, even if we assumed that the number of people claiming the basic pension remained constant, the Rs140 billion would be used up in 14 years. Thus, in the absence of an overhaul of the pension system, there won’t be enough money left to pay pensions in the future.

How is the CSG working in countries like France?

Unlike Mauritius, CSG contributions collected in France are earmarked for social security payments and are not fungible. This means that any surplus can be carried over. So the French CSG, contrary to ours, functions effectively as a fund. This goes to further confirm that the government’s aim with the CSG is get more money to sustain its tax-and-spend frenzy.

In the political survey conducted by Synthèses/l’express, whose results came out last week, it seems that people don’t care about all this and that they overwhelmingly think that Pravind Jugnauth is the greatest leader this country has seen. How do you react to that?

As an economist, I generally don’t trust surveys for I am keenly aware of their inherent limitations. At any rate, if a respondent is between 18 and 25, he most likely doesn’t know any PM other than the current one, and if he just turned 18, he is probably still under the spell of the Rs20,000 gift promised in the 2023-24 budget and so, is likely to approve of the government and of its PM. The result is also a bit contradictory with the other findings of the survey. How do you reconcile the finding that Pravind Jugnauth is the “most performing” PM and yet his government trails behind the Labour-MMM-PMSD alliance in voting intentions (24.8% against 36%)? Or that Pravind Jugnauth is so popular, yet the country is plagued by ills of all sorts, for which the respondents blame mostly the ministers? Or that half of the respondents do not see any hope? I can go on, but I guess you get the point.

But the MSM seems to have moved from an almost marginal party representing about 4% of the population to the biggest party in Mauritius…

The MSM-ML-Whoever-else alliance came to power in 2019 with a mere 37% of the votes in an election that exposed all kinds of irregularities. Would you call that the biggest party in Mauritius? And let us not forget the circumstances that projected the MSM’s leader into the PM’s seat! But if you were to ask me why the MSM has become influential as a party, I would say it’s their use of money politics à l’outrance, their irresponsible electoral promises, their mastery of the art of nepotism and their dirty game of fishing from others’ pond. Sadly, this won’t stop.

What is your take on the paradox that although participants in the survey expressed their wish for a new leader, the ‘new leaders’ who have declared their intention to be prime ministers remained at the starting blocks. In fact some didn’t even make it to the starting blocks…

The wish for a new leader goes hand in hand with the people’s desire for change. But some of the ‘new leaders’ are neither young nor new as such. Many of them don’t make the cut because they aren’t credible and they’re yet to prove their mettle.

According to information published in l’express, the prime minister organised his own opinion poll and the results were more or less similar. Do you think an election is imminent on the basis of that?

I don’t believe in hearsay, even less engage in speculation! The PM recently said loud and clear that his government has yet another budget to present before its term is over, and that means he is inclined to use it to maximum effect. If the PM really believed that he was so popular, he would’ve announced the general elections on the day the Privy Council verdict fell.