PML 2015 Pre-Budget Consultations – Points for consideration and Proposals

Platform Moris Lanvironnman
Submitted in August 2014

The Press Communiqué from the Ministry of Finance and Economic Development relative to the 2015 Pre-
Budget Consultations indicates that “As stated recently by the Prime Minister, Minister of Finance and
Economic Development, Dr. Navinchandra Ramgoolam, GCSK, FRCP, Mauritius is now resolutely embarked
upon a major transformation agenda underpinned by the attainment of the following three overriding and
interrelated objectives namely High Income, Inclusiveness and Sustainability. The ultimate purpose is to
better serve the people, ensure their well-being and further improve their quality of life.”
Further, the Government of Mauritius has adopted “Maurice Ile Durable” (MID) as the new sustainable
vision to guide national development. At the request of the MID Commission, a Green Economy Action Plan has been drafted by the University of Mauritius with the collaboration of the United Nations Environment Programme (UNEP). The UNEP Green Economy Report¹ defines a green economy (GE) as “one that results in improved human wellbeing and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a green economy can be thought of as one which is low carbon, resource efficient and socially inclusive”.
The setting in motion of the Green Economy in the context of the graduation of Mauritius to a high income economy poses great challenges to Mauritius. In this regard, Platform Moris Lanvironnman (PML) puts forward some points for consideration and makes some proposals for the forthcoming Budget.

Points for consideration
A. Inclusiveness and sustainability. The attainment of the “three overriding and interrelated
objectives namely High Income, Inclusiveness and Sustainability” presumes the existence of indicators to measure progress towards the three objectives individually and/or jointly. While the World Bank definition of a high-income economy has been espoused by the Government, indicators for “inclusiveness” and “sustainability” have yet to be defined. Although economic growth may be a necessary condition to bringing about an improvement in the quality of life, it is not an adequate measure of social progress and well-being, inclusiveness and sustainability.
Questions that need to be answered in this context relate to how well economic growth in the past 20-25 years has brought about social progress and well-being, inclusiveness and sustainability.
a) Has the trickle down approach brought the intended outcomes for communities at the bottom of the ladder (a fair proportion of our human capital)?
b) What has been the toll of sustained and rapid economic growth on the environment and ecosystems (our natural capital) in the past 20-25 years?
c) How has general well-being fared during the past 20-25 years?
d) Will a high-income economy purposely benefit very low to low-income communities?

B. Rising poverty and inequality.

1. There has undeniably been some measure of social progress by way of improved housing
   conditions, lowered general and infant mortality rates, longer life expectancy at birth,
   higher education attainment levels and improved quality of life in general during the past
   20-25 years. However, the fundamental question is: can general well-being improve in a
   society where inequality and relative poverty are on the rise?
   According to the Household Budget Survey (HBS) 2012, the proportion of poor households below the relative poverty line (set at the half median monthly household income per adult equivalent) was 9.4% in 2012 up from 7.9% in 2006/07; and the number of poor households increased from 26,400 in 2006/07 to 33,800 in 2012.Income inequality increased between 2006/07 and 2012. The share of total income going to the 20% of households at the lower end of the income range decreased from 6.1% in 2006/07 to 5.4% in 2012. On the other hand, the share of the upper 20% of households increased from 45.6% to 47.4%.The rise in income inequality is confirmed by an increase in the Gini coefficient from 0.388 in 2006/07 to 0.413 in 2012.
2. Previous HBS on the other hand indicate that between 1980-1981 and 2001-2002, the Gini Coefficient shows declining inequality:

c. The above figures show that income inequality has been on the rise since 2001-2002. During the same period, GDP (at market prices) has risen from Rs 134bn (2001) to Rs 344bn (2012), up from Rs 39bn in 1990. As can be clearly seen, the growth in GDP (+156%) during the past 10-15 years has not brought about a reduction in inequality.
C. The failure of the trickle-down approach or of a model? It stands to reason to conclude therefore that economic growth does not in itself guarantee an improvement in equity and well-being for each and everyone. Indeed, the pursuit of rapid economic growth that the graduation to a High Income Economy by 2020 or 2025 would entail may well result in reduced well-being (and increased unsustainability).
D. Increasing Unsustainability.
Regarding Sustainability, the past 25 years have seen
– Rapid loss of natural capital in the form of disappearing wetlands; loss of arable land to built-up occupation; shrinking of land under forest cover; erosion of beaches; lagoon pollution; erosion of land leading to the loss of fertile top soil; impoverishment of land due to over-use of chemical pesticides and fertilizers and contamination through pollutants; loss of marine, freshwater, coastal, and land biodiversity; reduced aquifer recharge due to increased surface/soil sealing in water catchment areas and so on.
– Over reliance on fossil fuels for our energy supplies; increasing reliance on imported food supplies leading to food insecurity, to mention only these.
E. A green economy is an economy that values nature and people and creates decent, well-paying jobs: “People’s livelihoods and sense of dignity are bound up tightly with their jobs. A job that is exploitative, harmful, fails to pay a living wage, and thus condemns workers to a life of poverty can hardly be hailed as green.”² Hence a green economy, as defined in the introduction, is an opportunity to reverse the tendency of growing poverty and inequality while giving due value to the environment.
F. Low productivity and efficiency of human capital. Workers earning less than a living wage are less productive on account of poor nutrition, poor health and tiredness arising from sometimes holding two jobs to make ends meet.
G. The value of ecosystem services and of natural capital. From the perspective of an economist, biological diversity or ‘biodiversity’ is of interest for two fundamental reasons. First, on account of the strong interrelationship between people and society and the natural environment, biodiversity is seen to be valuable to society. Second, choices made by society have had and are continuing to have effects on biodiversity. Biodiversity provides a large number of free goods and services that sustain our lives. Our personal health, the health of our economies and of human society depend on the continuous supply of these ecological services that are, when no longer naturally available as a result of the destruction of the natural ecosystems, extremely costly to replace by artificial means. Some examples of ecosystem services are: food and water supply, filtration of pollutants by wetlands, climate regulation and stabilization, protection from disasters and extreme events (e.g. erosion prevention and flood prevention). The greater the biodiversity we have therefore, the better off we are; and if we lose some biodiversity, we consider ourselves to be worse off.
H. The Equator Principles. We further note that signatories of the Equator Principles³, a financial industry benchmark for determining, assessing and managing environmental and social risk in projects, “recognise the importance of climate change, biodiversity, and human rights, and believe negative impacts on project-affected ecosystems, communities, and the climate should be avoided
where possible.”

Proposals

1. Incorporating the valuation of ecosystem services and of natural capital. The two reasons outlined in G above have led economists to conclude that biodiversity is a scarce and valuable resource. Because the overriding goal of economics is to deliver choice solutions that make society better off, and pending the publication by Statistics Mauritius of an updated list of indicators on Quality of Life and Sustainable Development after public consultation and upon expert advice, PML proposes that Government incorporates the valuation of ecosystem services and of natural capital into its national economic and development planning and policy choices, as well as at project level – at examination stage by the Board of Investment (BOI) and/or during the operation of the fast-tracking mechanism.
2. Incorporating the full cost of coal in electricity production. Coal being the most polluting of all fossil fuels, it carries heavy external costs. We therefore propose that the full cost of the utilisation of coal to produce electricity is reflected when considering options during policy formulation for the electricity sector and at examination stage by the BOI. For existing coal power plants where Power Purchase Agreements are soon coming to term, renegotiation of PPAs must include the full pollution abatement costs, i.e investment in pollution abatement equipment and measures for solid, liquid and gaseous effluents in conformity with best international practice.
3. National Physical Development Plan/Aménagement du Territoire. Physical spatial planning is
   essential to sustainability because different land users compete for the same natural resources.
   Since the adoption of the National Development Strategy (NDS) in 2003, to what extent have we
   been adhering to the development plan and the Planning Policy Guidelines? Development projects for housing and infrastructure have focused principally on green field with concomitant decrease in valuable agricultural land. In the light of sectoral trends as well as trends linked to climate change, there is necessity for a review of the NDS.
4. Green Economy – Green Jobs – Living Wage. PML proposes the introduction of a Living wage; the
   living wage being based on the amount an individual needs to earn to cover the basic costs of
   living. The UK Government is progressively moving towards implementing it and a number of key
   companies and institutions in the country have undertaken to pay all their staff at least the living
   wage. According to the Living Wage Commission UK, “The Living Wage is increasingly seen as an
   important measure in addressing the crisis of low pay”⁴. In Canada, New Zealand, USA, campaigns
   for the introduction of a Living wage are on. In Mauritius a first pilot phase could be introduced
   with 3 to 4 companies in each sector being invited to implement the living wage for all its low-paid
   staff, in exchange of tax breaks. Other modalities need to be looked into. This experiment could
   be implemented over 3 financial years to assess its merits.
5. All Environment-linked taxes, levies and fees are to be vested with the MID Fund. All such taxes,
   levies and fees presently go into the general fund and do not necessarily serve the purpose they
   are designed for. PML proposes in that connection that disbursements from the Fund are in
   proportion to the amount paid in by the different sectors (waste, energy, pollution, etc.).
   Recycling/reuse businesses for example could directly benefit from funds originating from existing
   levies and taxes on plastic bags, aluminium cans and plastic bottles.
6. Investment in domestic solar PV and domestic biogas units to be deductible from Income Tax.
   As an incentive to promote the production of electricity and energy from renewable sources,
   investment in domestic solar PV and domestic biogas units are to be deductible from Income Tax.
7. Reduction in transport-related fossil fuel dependence and pollution. Provide for a study on the
   feasibility of harnessing the potential of biogas production for fuelling public buses.
8. Environmental Pollution Study and Epidemiological Studies. Provide funds to carry out a fully
   fledged multi-sectoral Environmental Pollution Study including inter alia: pesticides and other
   persistent organic pollutants; gaseous, solid and liquid effluents from coal and other fossil fuel
   use; transport pollution, etc. Epidemiological studies that look into the environmental factors
   that have been linked to adverse health effects such as cancer, respiratory disease and
   reproductive problems must also be conducted.
9. Ban on plastic carry bags at all retail outlets. Levying of taxes on plastic carry bags having only a
   temporary effect on the reduction of consumption, to announce a ban on all below-50 micron
   plastic carry bags with or without handles at all retail outlets as from June 2015. This will serve to give impetus to the efforts of the Ministry of Environment and Sustainable Development to put an end to the use of single-use plastic carry bags. In addition, providing incentives using funds from the MID Fund to artisans in Mauritius island and Rodrigues in the manufacturing of vacoas
   (Pandanus heterocarpus and P. tenuifolius) bags would contribute to job creation.
10. Tax on Styrofoam containers (take-aways). Styrofoam containers are not recyclable and like
    plastic bags they contribute to flooding by blocking drains and waterways and are ingested by
    marine life when they find their way into the sea; they also act as a receptacle for rainwater,
    thereby posing a risk of waterborne diseases such as malaria, chikungunya and dengue. Because
    of their high environmental and social costs, they should be phased out. We propose an
    environment fee of Rs 3 per container pending a plan for phasing out.
    
    
    Platform Moris Lanvironnman
    17th August 2014
    

1. UNEP United Nations Environment Programme. Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, 2011
2. Green Jobs: Towards decent work in a sustainable, low-carbon world, United Nations Environment Programme (UNEP), the International Labour Organization (ILO), the International Organisation of Employers (IOE), and the International Trade Union Confederation (ITUC), 2008.
3. www.equator-principles.com
4. https://livingwagecommission.org.uk/