Mauritius Fiscal Policy and Poverty Reduction
Mauritius has made significant progress in reducing poverty and inequality in recent years, largely attributed to supportive fiscal policies. However, this has also led to a deterioration of the fiscal position, with public debt reaching around 90% of GDP. The government aims to restore fiscal sustainability while preserving the gains made in social and poverty indicators.
Key Findings:
- Poverty and Inequality: The national relative poverty rate fell from 9.6% in 2017 to 7.3% in 2023. The Gini coefficient decreased from 0.40 in 2017 to 0.33 in 2023. Poverty is higher in Rodrigues and among households with lower education levels.
- Fiscal Policy and Poverty: While social protection measures have helped reduce poverty, there is room for improving the targeting of social benefits and increasing tax revenue. The BRP (universal) old-age pension, for instance, has a low share of beneficiaries from low-income households.
- Tax Reforms: VAT exemptions could be made more progressive to increase revenue without harming the most vulnerable. Lowering the VAT payment threshold could also generate additional revenue.
- Personal Income Tax (PIT): The PIT system is relatively generous, with a significant portion of income earners exempted from taxation. Removing some excise duty exemptions, such as those on electric vehicles, could improve tax progressivity.
Policy Recommendations:
- Social Expenditure: Improve targeting of social benefit programs to reduce spending while protecting the poor.
- Tax Reforms: Make VAT exemptions more progressive, lower the VAT payment threshold, and remove some excise duty exemptions.
- PIT System: Gradually reduce the PIT exemption threshold to broaden the tax base.
Mauritius Residential Real Estate Sector Developments
Mauritius has experienced a surge in residential real estate prices, raising concerns about housing affordability and financial stability risks.
Key Findings:
- Housing Market Cycle: Mauritius' housing market transitioned from a cooling phase to an expansion and boom phase following the COVID-19 pandemic, driven by low interest rates, fiscal stimulus, and increased foreign demand.
- Regional Trends: Real estate prices have risen significantly across all districts in recent years, with Moka and Pamplemousses emerging as new high-value zones.
- Historical Drivers: Limited developable land and a real estate-focused growth strategy have contributed to the surge in property prices.
- Post-Pandemic Policies: Fiscal measures introduced after the pandemic, such as the Home Ownership Scheme and the Home Loan Scheme, have further fueled demand and prices.
- Housing Affordability: Progress in social housing construction has been slow, leaving demand largely unmet.
Policy Recommendations:
- Scale Back Post-Pandemic Fiscal Measures: Consider reducing fiscal support for the residential real estate sector to prevent overheating.
Increasing Resilience to Weather Shocks on Housing
Mauritius is highly vulnerable to climate change, and weather shocks pose significant risks to housing infrastructure.
Key Findings:
- Weather Shock Patterns: Cyclone season (November to May) and northern eastern regions are more vulnerable to weather shocks.
- Housing Damage: The likelihood of roof and wall leaks is higher in more vulnerable districts and during the cyclone season.
- Insurance Coverage: Only a small portion of households have house and content insurance, leaving many exposed to financial losses from weather-related damage.
Policy Recommendations:
- Expand Access to Private Insurance: Improve affordability and raise risk awareness to encourage more households to obtain insurance.
- Stricter Enforcement of Environmental Regulations: Adapt construction regulations to climate and environmental challenges to reduce the likelihood of leaks.
- Concessional Financing: Utilize low-cost financing options to support government measures that help households adapt to climate change.
