Economic Analysis - Negative Income Tax To Produce Mixed Results - JAN 2018

BMI View: The introduction of the Negative Income Tax will in the short term bolster consumption and widen the current account deficit. In the long term, we believe that this policy c ould incentivise a situation in which there is lower individual output but higher employment in several key sectors, alongside higher fiscal spending.

The introduction of the Negative Income Tax (NIT) - government income support for low paid workers -will likely result in a short term boost to consumption and a widening of the current account deficit, while the long term implications include higher fiscal spending and lower wages but a reduction in unemployment. We expect that the benefits of this policy for the economy and fiscal balance of Mauritius will be felt most strongly in the short term, as a temporary boost in consumption and the corresponding increase in demand for the retail sector will help Mauritius' economy at a complex time of transition. In the long term, we believe that employers will likely reduce the pay of low-skilled workers who earn marginally more than the maximum bracket, in the knowledge that the government will make up the difference, increasing the number of NIT claimants. Some workers would have reduced incentive to work additional hours, reducing output however, the combination of lower wages and output will encourage an increase in employment.

What is the NIT?

Number Of NIT Claimants Could Rise If Workers Reduce Their Overtime
Mauritius - Average Monthly Income By Job In 2016, MUR
Note: The b lack l ine marks the monthly salary at which workers qualify for NIT payments. Source: Statistics Mauritius, BMI

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