Mauritius: After-effects of the pandemic - How Covid-19 impacts the relationship between state and business

17 November 2020

Business Mauritius has taken State plan to overhaul the pension system into the CSG to the Supreme Court; meanwhile, lawyer Hervé Duval is challenging several government decisions.

Likewise, government has upped the ante in its war of words against employers. These latest contentions point to a deeper disquiet. Does the private sector feel that they are being taken for granted by an overpowering government?

The wrangling between government and the private sector is reaching a new pitch. Last week Prime Minister Pravind Jugnauth criticized once again those calling for a review of the pension system put in by government and those calling for a re-opening of borders to tourism. Earlier, Minister of Finance Rengenaden Padayachy and Minister of Labour Soodesh Callichurn ruled out calls to review the Worker's Rights Act (WRA). The tough language from government comes as Business Mauritius has formally lodged a case at the Supreme Court contesting the Contribution Sociale Généralisée (CSG) scheme proposed by Padayachy back in June.

"Right now the main front in this disagreement is the CSG, it was just thrown on the country without any prior discussion and now the matter has ended up in court," economist Pierre Dinan tells l'express. Questioned about why Business Mauritius has decided to turn to the courts, Kevin Ramkaloan, CEO of Business Mauritius, tells l'express: "For us, the CSG and the abolition of the NPF was a question on which we could agree or build a consensus; so we said 'let the courts decide on them'. These are difficult times for the country; so, those things on which we cannot agree, let the courts deal with them so that we can focus on other issues."

The timing of Business Mauritius' case is crucial with the collection of contributions for the CSG - slammed by its critics as just a thinly-veiled payroll tax on private-sector employees to help fund the government's promised hikes of the state pension from Rs9,000 to Rs13,500 - system that starts at the end of this month.

While the language from government is putting this as a fight between the 'haves' and the 'have-nots', the situation is more complicated for the simple reason that the 'have-nots' themselves don't seem to be giving their full-throated backing to government's move. "I agree that the CSG is like a direct tax and parts of the CSG are good but we have our own reservations about the system; it just pools all the money raised by the CSG into the consolidated fund without any law saying how these contributions will be managed to prevent a government from simply spending it all. We cannot accept the CSG until this point has been addressed," Reeaz Chutoo, president of the Confédération des travailleurs des secteurs public et privé (CTSP), argues.

Nor do the different unions seem to be on the same page, according to Ram Seegobin of left-wing party LALIT. "The union movement itself does not know where to stand on this; some sections are saying it's progressive, meaning those earning more will be contributing more, but why not just raise income tax rather than introduce a new payroll tax like this? Public sector unions are silent because it does not affect their members; just private sector workers; and in the private sector there are divisions between those unions that argue that their members will end up contributing less under the CSG than they did under the NPF, whereas others have members contributing to private pension funds; so workers themselves are very divided over the CSG."

THE OTHER FRONTS

The CSG, however, is just one of the fronts on which government and business seem to be clashing. Another one was on the pace at which Mauritius is reopening its borders to tourism. "It was obvious there has been an ongoing conflict here; the tourism industry wants its business to survive and, for that, you need tourists and open borders; the government, on the other hand, is afraid of ending up with a health system overwhelmed by Covid-19," argues Seegobin, who adds, "this has quietened a bit now because our main tourism markets in Europe themselves have entered lockdown again." The CSG conflict is further upped by the one over the WRA, after Jean-Michel Pitot, president of the Association des hôteliers et restaurateurs de l'île Maurice (AHRIM) asked government to review this law. Speaking to l'express, Pitot says, "the WRA was implemented back in November last year before the advent of Covid-19; it was already difficult for us to implement it back then."

This shows there government and business priorities fundamentally differ: while the government wants to avoid the political damage of Covid-19 by minimizing layoffs, from the point of view of business, the WRA is just hobbling their ability to restructure and prepare themselves for potentially tough times ahead. "The main idea should be to relaunch the tourism industry and that won't happen overnight, it may take two, three or four years for us to return to the same volume of tourists as before and being able to support the same number of staff; we need more flexibility to allow staff to work parttime and the WRA is too strict to allow that," adds Pitot. Although Labour Minister Sudesh Callichurn has ruled out any changes to the law, in Pitot's view, "we need to look over the horizon and prepare for a post-Covid situation where things are still bad and without help, it will become more difficult to service our clients at the level they are used to."

The difference in perspectives is clear: the government wants to minimize the damage, while business is looking at what happens once this transitional arrangement of statesupport runs out. The Wage Assistance Scheme (WAS), for example, Pitot insists, covers just a quarter of the costs borne by the hotels. But even this is unlikely to last beyond 2021. What happens when that ends? "Right now we are just living off what we have set aside in past years, I don't think things will be much better next year and the cake will be much smaller, at the moment the country has to be brought back on an even keel first" argues Dinan.

THE CONTEXT

Back on October 26, the government released a survey conducted by Statistics Mauritius and the World Bank to gauge the effect of the Covid-19 pandemic. Amongst its key findings were:

10% of Mauritian households said they could not purchase basic food items in July.

12% of households said they had to skip a meal in July.

31% of households in July said their income had been reduced.

11% of employees said that they were working shorter hours than before Covid-19.

84.4% of self-employed and businesses said they were making less money.

40% of households said that they had reduced their food consumption in July.

36,800 jobs lost between the start of the year to July.

31,600 jobs lost in the informal sector.

5200 jobs lost in the formal sector.

The changing relationship

The current crisis between government and business goes way beyond policy disagreements. The legal challenges posed to the government point to a more fundamental concern: with Covid-19 laying business low and an unprecedented reliance on government for survival, the very nature of the relationship between the state and business is undergoing a fundamental shift.

Take the WRA for example. It is a return to an earlier legal framework. The Labour Act in 1975 compelled businesses before they downsized or restructured their operations to get the go-ahead from the now-defunct Termination of Contracts of Service Board (TCSB). That is, before any restructuring, businesses had to get prior authorization from TCSB. This was stopped by the Employment Rights Act in 2008, which allowed businesses more flexibility in hiring and firing; in return, the workfare programme was introduced and companies had to pay increased levies to the Human Resources Development Council (HRDC). The WRA, by introducing the Redundancy Board, is a throwback to the old Labour Act. Now what has happened under Covid-19 is that the government has prevented formal businesses from restructuring their operations until December and until businesses have taken aid from the Development Bank of Mauritius, the Mauritius Investment Corporation, or the State Investment Corporation first.

The ability of the state to prevent closure or restructuring of a lossmaking enterprise is something entirely new and a radical departure that gives the state an unprecedented ability to direct the internal workings of a business. This point is made in the plaint lodged against various government policies by lawyer Hervé Duval, who is contesting the constitutionality of several recent government decisions. Fundamentally, Duval's plaint is sounding the alarm of this shift in the relationship between the state and business, sparked by Covid-19. Other issues he brings up are the hiking of the solidarity levy on high-income earners to 10 per cent of total emoluments; the unsuccessful attempt to bring in a corporate levy marking a departure from the low-tax appeal of the Mauritian economy; giving out the WAS and later, announcing in the Covid-19 Act, that companies benefiting from it would have to pay a Covid-19 levy. Or the government deciding to push through a fundamental pension reform with the CSG, with no prior consultations in just a matter of months amid an economic crisis and a pandemic. And with the reform being proposed first and then the minister deciding by regulations on how much businesses would be paying later.

Duval's plaint argues that, by allowing such radical shifts in policy without debate and scrutiny, and allowing the executive to then flesh out the liabilities for businesses later through regulations, "parliament has abdicated its law-making powers in favour of the executive through an improper use of subsidiary legislation." Much the same argument is contained in the demand for a judicial review lodged by Business Mauritius (which contests just the CSG, unlike Duval's separate plaint, which contests a host of different decisions). The stereotype of business often is that they abhor long-drawn-out consultations in favour of decisive action, but in this case, the complaint seems to be that government - under Covid-19 - has simply abandoned the old tripartite policy of consultations and is simply riding roughshod over business, coming up with and exercising an unprecedented degree of control over it. And imposing changes as it sees fit without much scrutiny.

This is not to say that Mauritius alone is going through debate of state overreach under the cover of Covid-19. Back in September, House of Commons Speaker Sir Lindsay Hoyle slammed UK government for rushing through Covid-19-related regulations without much debate in parliament and appealing to the executive, "to rebuild trust with the House, not treat it with the contempt it has shown." Pretty much what Duval's plaint is arguing and what - by criticizing the habit of the government to impose its decrees on business via quick-fire regulations - Business Mauritius' own demand for a judicial review seems to be as well. In the UK, it was parliament and Covid-19-related regulations.

In Mauritius, it is business contesting abrupt and largely undebated changes in economic policy. The current fight, now in the courts, is not just about a specific policy; it is also about the much-deeper problem of how the Covid-19 pandemic has fundamentally altered the relationship between the state and business. And why business feels like it is bearing the brunt of it...

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