Africa-Press – Mauritius. Unannounced in any manifesto, the Contribution Sociale Généralisée (‘CSG’), is a taxation that was introduced to replace our contributory National Pension Fund system since September 2020 and has been the subject of much heated argument, made even more topical by the Minister of Finance’s recent announcement that some Rs 25 billion of funds received since the CSG’s introduction have been entirely used up for pensions and a variety of other government decided benefits.
We invited economist Rajeev Hasnah to explain and comment on the complex issues that may surround our pension system in a rapidly ageing population and more specifically, whether the CSG measures, which diverted private-sector funds from the NPF/NSF to government coffers to use for its own policies, were the appropriate answer to the pension conundrum.
We also recall that for the private sector, both the employer and the employee contribute to the CSG whilst for the public sector, only the employer contributes.
Rajeev Hasnah has been also invited to give his personal take on the general economic situation, including the post-pandemic recovery, the rising cost of living, the public debt levels and the depreciation of the Rupee.
Mauritius Times: What do you make out of the controversy raised in the wake of the Minister of Finance’s statement that the funds contributed to the Contribution Sociale Généralisée have dried up? Was that foreseeable and would you say the CSG in its present form would be more viable than the earlier NPF?
Rajeev Hasnah: We should recall that the “Contribution Sociale Généralisée (CSG) has been a very controversial issue since its introduction and that actuaries, economists and other professionals in the investment field raised concerns about the viability of such a policy decision.
Back then it was already very clear that the introduction of the CSG entailed a paradigm shift in pension management for private sector employees as we moved from an accumulation of funds for future pension payments for private sector employees to an outright/disguised “tax” on employees in the private sector (small, medium and large companies alike).
In essence, the introduction of the CSG resulted in the government becoming the sole owner and decision taker of funds that would otherwise have been injected into a pension fund belonging to all those who contributed to the fund. The fund’s only mandate was to invest the collected funds for future pension distribution to its legitimate beneficiaries.
As such, the CSG transferred an otherwise “savings” (NPF contributions) that legally and legitimately belonged to employees of the private sector to an ongoing income for the government (just like any tax that it collects like the VAT, income tax or duties) for the latter to use as it deems necessary.
To illustrate this point, the value of the National Pension Fund (NPF) as at 30 September 2020, the year that the CSG was introduced, stood at Rs 139 billion.
Two years later, as at 31 December 2022, the total value of the fund was Rs 138 billion since the money that was supposed to go into the NPF was taken over by the government in its Consolidated Fund.
Since the introduction of the CSG in 2020 and until 2023, the government collected around Rs 25.6 billion as additional revenues in its Consolidated Fund.
If the CSG wasn’t implemented and taking into account the contribution made for the benefit of private sector employees, the value of the fund as at 31 December 2022 should have been at least Rs 159 billion.
This would have been the case as the contribution made by private sector employees would have accumulated in the NPF, instead of going into the Consolidated Fund of the government as a CSG “disguised tax”.
In the NPF system, those who contributed to the funds remained the sole owners and future beneficiaries; in the CSG system, the government became the owner and decision taker of the funds collected.
* It has been suggested that raising the imposable rate for contributions to the NPF would have significantly mitigated the threat posed by an ageing population.
Are we now in a better position to understand why the government pressed ahead with the introduction of the CSG despite wide-ranging political and trade union protests?
I believe that today, it is rather obvious to everyone that the sole aim of the introduction of the CSG seems to have been to increase the revenues of the government such that the latter could decide how to then distribute those funds aligned to its policy decisions.
Instead of the contributions by private sector employees being saved for future pension payments, this money has been made available to the government to use as it deems necessary.
* There is also the issue of private sector employees contributing their share to the CSG, whilst public officers’ contributions are paid up by the government.
That’s blatantly inequitable — even if it could be proved that the CSG would be contributing to reducing inequalities in our society as argued by some economists. What’s your take on that?
Note that for public sector employees, it is the government who contributes on their behalf from the Consolidated Fund as expenses to the government’s Consolidated Fund as revenues, which the latter then uses as it deems necessary!
Those who argue that the CSG contributes to reducing inequalities cannot do so without admitting that the CSG is an additional tax paid by private sector employees only, as using taxation to resolve inequalities can only take place when we tax the haves, and we give it to the have-nots. With the CSG, we increased the “tax” burden on private sector employees only.
Source: Mauritius Times
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