The Moorish Wanderer

Guerre de Classes, ou La Politique Fiscale Redistributive

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on October 26, 2011

(ce post est une petite expérience pour mesure l’effet du changement de langue sur la variation du lectorat. Une version en Anglais sera publiée très prochainement)

An English version will be posted online very soon.

Le débat houleux qui englobe une grande partie des pays de l’OCDE sur les dettes souveraines, ainsi que les politiques publiques (budgétaires, économiques ou autres) les plus aptes à résorber les déficits accumulés depuis la crise financière de 2007 concernent le Maroc aussi. Certes, notre économie a été relativement épargnée par la grande contraction du PIB mondial observée en 2007-2009, mais cela est notamment dû à la faible intégration internationale du marché financier marocain, ainsi que la structure des échanges et la nature des partenaires avec lesquels notre économie entretient des rapports commerciaux.

Cela ne signifie pas que notre économie n’a pas pâti de cette contraction, car les résultats de croissance, en deçà du PIB potentiel, montrent bien que notre économie, bien que non-stationnaire, n’arrive pas à sortir d’une situation de quasi-dépression: une économie émergente dont le potentiel est à 5% qui réalise péniblement un 3% est certes en croissance, mais celle-ci est tellement faible qu’elle symbolise plus une situation de récession qu’autre chose. Et ces difficultés se répercutent sur les finances publiques; comme observé plus loin dans ce post, cette croissance ne bénéficie pas à tout le monde; et comme la politique fiscale a été entièrement conçue comme un soutien -presque à outrance– de la croissance comme moyen direct pour résorber les inégalités et la pauvreté ainsi comme un moyen (un peu simpliste) pour améliorer le niveau de vie moyen ou général.

Cette conception du fonctionnement des flux dans le circuit économique dénote d’une certaine idéologie dite ‘Trickle-Down Economics“: la croissance générée sera tôt ou tard redistribuée par divers moyens, et tout un chacun profitera d’une manière ou de l’autre. Par conséquent, il est contre-productif d’imposer une fiscalité discriminante (au sens économique du terme) car décourageant les plus affluents d’investir, voire de partir avec leurs fortunes. C’est un peu dans cet esprit que la réforme du code des impôts en 2008, proposée par M. Salaheddine Mezouar a baissé le taux de l’Impôt sur le Revenu (IR) notamment le taux marginal de 42% à 38%. On retrouve aussi une fiscalité extrêmement généreuse en faveur des placements boursiers. La réalité cependant fait que ces dispositions fiscales, alors qu’elles bénéficient au premier décile (les 10% ménages les plus riches) ne se répercutent pas forcément sur les revenus des autres ménages, plus précisément sur ceux des ménages médians, considérés comme étant la classe moyenne de notre société.

Si même notre classe moyenne est lésée par une fiscalité déséquilibrée, une dette en augmentation, et une croissance dont elle ne bénéficie pas, une proposition radicale de redistribution de richesses ne relève pas de la tentation de mener une “guerre de classes” mais bien d’une volonté de parer au risque d’une explosion du ras-le-bol social.

Notre “problème fiscal”, à la fois structurel et conjoncturel, trouve son origine dans l’arbitrage effectué par le ministère des finances entre la levée de taxes (ou impôts) et l’emprunt sur les marchés domestique et international. Début 2011, les chiffres du ministère permettaient d’observer une augmentation anormale du stock de la dette publique, qui passe de 384Mds à 398Mds en 2011. Une évolution en rupture avec la tendance baissière observée depuis 2006. En termes généraux, cela signifie que chaque Marocain est à titre personnel et solidaire, endetté à hauteur de 12.360dhs. Il est encore plus intéressant de noter que les jeunes générations, ceux âgés de moins de 21 ans, le tiers de notre population, sont déjà endettés de près de 16.000dhs avant même d’entrer sur le marché du travail.

En un sens, cette augmentation de dette risque handicaper les futures générations avant même d’entrer sur le marché du travail: à moins de justifier cette augmentation de dettes par une augmentation du patrimoine producteur de richesses, l’argument que la dette est mauvaise pour l’économie, présente et future se maintient. Or on observe que les crédits alloués à l’investissement public restent très stable. Cette constatation d’ordre générale tend à confirmer l’idée, qu’effectivement, la dette cumulée, et plus précisément la dette contractée depuis 2009 ne sert que très partiellement à payer l’investissement public, et met en danger l’avenir des générations futures et la solvabilité de notre économie.

On observe une nette réduction du déficit par rapport au PIB, mais la tendance haussière du début des années 2000 se confirme jusqu'à la dernière Loi de Finances 2012. (RDH50.ma)

D’un autre côté, les recettes fiscales sont restées très stable sur la même période; en réalité, le potentiel de ces ressources fiscales n’a cessé d’augmenté -au moins au même rythme que la croissance du PIB- mais la volonté des gouvernements successifs depuis 1999 de ne pas trop taxer a fait qu’ils ont privilégié un déficit public -il est vrai contenu à moins de 5% du PIB- plutôt que de réformer la structure des impôts ou de s’attaquer aux différentes niches fiscales. Entre 2005 et 2011, le montant des dépenses fiscales a presque doublé, en passant de 15Mds à 29.8Mds.

Cette décision de baisser la pression fiscale se voulait promotrice de croissance. Et en un sens, cette politique a certainement contribué à élever le niveau moyen de croissance de 2% lors des années 1990, à 4.6% jusqu’en 2011. Cependant, cette croissance n’a pas bénéficié à tous; en observant la répartition du Revenue National Brut (RNB) par quantile de ménages, on observe que la classe moyenne (ou classe médiane) depuis 1999 observe une nette dégradation de sa part, qui passe de 14.97% à 14.54% en 2008, et qui se dégraderait encore plus aux environs de 13.2%, suivant des calculs plus récents du HCP. Pire, lorsqu’on ajuste le revenu par tête de cette classe de revenu à l’inflation (ICV) on constate qu’elle a perdu, en moyenne, 13,000dhs de pouvoir d’achat en termes réels. Cette même classe sociale se retrouve à payer un taux IR estimé effectif de 22%, le plus élevé de toutes les classes de revenus (après le taux effectif du deuxième quintile, 24%), certainement plus élevé que celui payé par les 10% les plus riches par exemple.

Une politique fiscale volontariste, qui se veut en tout cas à la fois équitable et optimale, a devant elle les objectifs suivants:

– Renverser la tendance des exonérations fiscales en faveur de l’investissement plutôt que la rente: une petite poignée d’investisseurs à la Bourse de Casablanca concentre 85% des 30Mds de revenus versés en 2011, et ne les réinvestissent pas, car encouragés par la déduction offerte sur 90% de ce revenu. Pourtant, un taux d’imposition marginale élevée sur les dividendes, assorti d’une exonération sur l’achat d’immobilisations ou d’investissement en Recherche (appliquée ou fondamentale) permettrait d’obtenir à la fois des recettes supplémentaire au budget, et orienter les investisseurs vers des placements productifs pour eux, pour les générations futures et pour l’économie en général.

– Décréter la fin du moratoire sur l’Impôt Agricole: il est faux de prétendre que cette exonération discrétionnaire profite aux petits agriculteurs, puisque la Surface Agricole Utile (SAU) est largement concentrée autour des grandes exploitations agricoles, lesquelles sont détenues en majorité par des citadins. Ce sont là 112Mds de revenus que l’impôt ne touche pas, et qui parfois bénéficient même d’une généreuse subvention qui bénéficie à une minorité affluente.

L’argument selon lequel un impôt agricole endommagerait notre compétitivité à l’export, ou la rentabilité des exploitations agricoles modernes, voire tout le secteur agricole est non seulement léger, mais trahit une volonté de maintenir un statut-quo malsain, en effet:

[…] les cultures maraîchères et agrumes, principales productions d’export, n’occupent respectivement que 3 et 0,85 % de la SAU4, et les prix à l’export sont inférieurs à ceux enregistrés dans d’autres pays méditerranéens (Agriculture 2030, Quel Avenir pour le Maroc? p.18)

[…] La grande majorité de ces exploitations sont des petites et moyennes exploitations (PMEA). On ne compte en effet que 59 000 exploitations de plus de 20 ha, dont 11 000 de plus de 50 hectares (grandes exploitations), celles-ci détenant à elles seules 15 % de la SAU. (Idem p.21)

– Déplacer le taux effectif de l’IR vers les ménages les plus affluents, notamment les 10% les plus riches, afin de rééquilibrer la distribution de l’IR et la faire coïncider avec la concentration des revenus; cela se traduit notamment par des baisses d’impôts discriminantes notamment en faveur des ménages médians (ceux aux revenus entre 50,000 et 60,000dhs annuels) Cette baisse d’impôt est la mesure la plus directe pour soutenir leur pouvoir d’achat et consolider leur part de revenu dans le RNB.

Ces mesures seules permettent d’anticiper non seulement une augmentation substantielle des revenus fiscaux, mais sont à même d’influencer positivement la consommation intérieure, la résorption du déficit de la balance de paiements, l’augmentation de l’investissement et de la formation brute du capital fixe (FBCF) et enfin, de l’amélioration des indices d’inégalités. C’est en engageant ces réformes structurelles qu’il sera possible de payer et la dette contractée, et de financer ces investissements nécessaires à maintenir et améliorer les performances de croissance de l’économie marocaine.

Moroccan Elections for the Clueless Vol.9

Someone noted I give Bank Al Maghrib figures too much credit; but the truth is, they are the ones setting interest rates, and they are the ones holding the chips when it comes to foreign reserves, banking regulation and all things monetary. And when HCP datasets are adjunct to the whole thing, detailed analysis paints a pretty accurate picture, one, it seems, political parties (partisan or others) do not take into account when they launch their “Grand Designs” and other commitments. Ambition is good for political projects, but it should not come to the expenses of reality.

Plus Bank Al Maghrib Governor is truly independent of the elected executive and legislative branches -since he is appointed by Royal Dahir– so yes, BAM (and HCP’s) projections are credible and will tie the next government’s hands. In growth, public debt, inflation and unemployment, manifestos will have to adjust to these realities; some of them already did not, and I do hope the next batch of announcements will be a little bit more realistic on their economic promises.

Potential Growth will not go beyond 5% on average

This is a fact. And that level of growth determines a whole lot of other variables: expected government receipts and employment are a few real variables that government can more or less influence during their tenure. And so, a 5% (average and relatively stable) growth till 2016 means GDP will stand at 1.03 Trillion dirhams (so congratulations for the next government who will preside over passing a symbolic landmark) Since HCP projects an average demographic growth of 1.02% over the period, the projected GNI per capita will rise from MAD 19,700 to MAD 24,900 in 2016.

(relatively) modest figures political parties would do well to consider theirs, too.

Projected growth has a direct impact on government receipts; unfortunately for the spendthrift manifestos, if they do not pledge specific and far-reaching fiscal reforms, their net gain in terms of fiscal receipts will not go beyond 2Bn a year.

But let us go back to the earlier point: the statement “potential growth will not go beyond 5% on average” finds its basis on past performances: even in the best days of post-structural adjustment program, the domestic economy has not broken through 6% in any 3-years period since 1998. And in a troubled world economy, I would find it extremely difficult to believe that any party, including PJD, would bring this economy to a sustained 6% and above growth over their tenure. Plus it would be a sure sign of maturity to work with the Bank’s numbers and instead pledge to stabilize and spread growth instead.

Government Policy will have to deal with public debt first

This has huge repercussions on government anticipated receipts, the size of its balance sheet budget, and subsequently on any policy they might be set on pursuing; So manifestos should integrate these facts in their growth projections, because in all candour, high growth leads to high expectations in terms of receipts (thus triggering an inflation of earmarked projects) and when the promised growth does not show up, they will have to settle for less, or even cut back on many of these programs.

And it is not like there is room for manoeuvre: the projection assumes a strong de-leveraging in public debt, and bring down the public deficit to acceptable levels (around 3% following the same projections) in fact, government budget policy will have to find a way to reduce its net public borrowing from 28Bn to 21Bn until 2016. And unless the next coalition is ready to face a hike in main interest rates, they will have, one way or the other, to reduce the domestic debt ratio from 38.2% to an average of 36%, an annual de-leverage of 2Bn to achieve such a target.

The only getaway remains to look credible in cutting spendings, so as to attract enough foreign borrowings to make up partially for the shortfall. The risk of an interest rates hike is always looming: because Bank Al Maghrib pledges to maintain Dirham currency value at an announced pegged level, it will hike up interest rates whenever it considers it necessary to maintain its currency reserves. That means the cost of debt (whether public or private) will go up, and that usually hurts an economy, considering that our economy performs -at the moment- below its potential growth level.

And there goes the classical trade-off of government budget: cutting spendings to pay back the debt, or pay for all the tax cuts and incentives, the programs and investment political parties have promised in their manifestos. With IMF breathing heavily on their neck, rest assured our elected (and non-elected) officials will make the right and fair choices for our economy.

Observe Real Increases vs Nominal Increases

When a party like USFP promises to double GNI per Capita over 5 years or a decade by promising a certain growth rate, they often seem to skip the next crucial word: “in real terms”. And that may be due to a certain confusion on the effect of inflation on their pledges, USFP or otherwise. And I use the  opportunity to explain how things do not look the same.

When a manifesto claims it will increase, say, minimum wage by a certain percentage, it does not state the nature of such increase. Equivalently, when a pledge is made to maintain a certain level of growth, it does not specify whether it is a nominal growth, or real growth. Before I go on, I should perhaps specify that the potential growth rate of 5% is in real terms i.e. that no inflation is embedded in it, so there is no issue of discrepancies in terms of real income and real growth gains.

In order to make sense of inflation and its link to nominal rate, just think of it as a discount rate:

(up to a marginal term that goes to zero when both values are small enough)

And so, when inflation grows higher, the benefits of nominal growth grow smaller than expected; so unless the same manifesto nails down their own target inflation rate, these numbers should be considered very carefully with healthy scepticism.

I don’t have time for the projected number of job creation, but that will most certainly be the subject of my next piece on electoral manifestos.

5 Myths in Electoral Manifestos #Intikhabates2011

After the post-referendum silly season, here comes the election season. Parties are gearing up and leaking excerpts of their manifestos.

Myth n°1: A Target Rate of more than 6% GDP Growth.

Much has been promised in 2007 on GDP and GNI growth. And much will be promised, starting from USFP who unveiled part of their manifestoyesterday, on growth. Why focus on GDP growth? The idea behind it (explained further in Myth n°2) is to convince the Moroccan citizens that high growth generates revenues and income for all.

Wildyl off-charts: how can these parties put together realistic proposals?

But what is more, a high growth rate puts our economy in the “big league”, i.e. these emerging economies in South-East Asia and Latin America, an economy with such promises that foreign investors will flock to have a slice of this Eldorado cake, fuelling the initial growth until we reach a steady state, and before you know it, we have had caught up with South Korea in no time.

This halcyon scenario ignores an array of exogenous parameters, least of which global cycles and demand. Furthermore, the simplistic assumption that GDP or GNI per capita may grow at a constant rate, or that it can double, or triple over time is ludicrous, because it skips the vital question of growth stability: suppose indeed growth average has been 7%. But what happens when that average growth goes volatile (meaning, a 7% growth with a 3% standard deviation for instance) ? The obvious result is that accumulative gains are going to be lower, and would even be wiped off if the growth trend goes hyper-volatile. So unless a party’s manifesto specifies a commitment to stabilize growth, a growth target is as irrelevant as is the objective to double income per capita or more.

Finally, the proposed growth figures, so far, are unrealistic with regards to the present trend, and the potential output the domestic economy can deliver. Numbers evolving around 6-7 or 8% are unrealistic, in the sense that they are likely, when attained, to kick off inflationary pressure; now, it might be good economic policy for a government to start off their legislation with a modest boost in GDP growth (or equivalently, hold it off until their last year in office before election) to show their commitment for a growth economy, and to catch up the losses in low growth observed in the couple last last years. But to try and maintain high levels of growth to, say, increase employment, will only heat up the economy and lead to inflation, a worsening trade balance and dwindling foreign reserves.

The potential growth rate is, in many respect, a “trade-off” rate: it does not increase inflation, nor does it reduce unemployment. When maintained over a relatively long period of time (5 or 10 years) then inflation is kept on check, and unemployment actually converges to its natural (or structural level). This virtuous state cannot be achieved with growth rates above the potential rate of 5% and an inflation target rate of 2%. Bank Al Maghrib has displayed, in their charts, a piece of advice political parties would do well to heed: don’t overdo it on growth rate. And so, any politician who proposes a benchmark rate of more than 5% does not know what they are talking about. And we don’t want to elect an incompetent, do we?

Myth n°2: GDP or GNI Growth benefits everyone

As pointed out in previously, growth does not bring wealth to everyone, and certainly not to those supposed to be the darling of all political parties: the middle classes.

the trend points out to a positive effect of growth on unemployment, but not as strong as one makes out (Bank Al Maghrib)

I have laid out the argument in a previous post, but a brief reminder would do no harm: the evidence shows that so far, growth benefits mainly -if not exclusively- to the top 20% (and I suspect a smaller subset within these 20%). When a manifesto proposes to improve the average income per capita, then one has to be careful to look for actual benefits across households classes. In simple statistical terms, the average might grow, but it brings no additional information on the dispersion of incomes around that average.

If anything, growth has a negative impact on income distribution, in the sense that it only confirms unequal distribution. The same evidence also does not show clear correlation between growth and a fall in unemployment. And that vindicates the third point too.

Myth n°3: Government policy can create 200,000+ jobs per annum

This is one of the few targets all political parties talk about. It seems their strategists believe jobs is the number 1 issue in Moroccan households -may be it is, but since no serious polls can be carried out under the present legislation, no one can tell. And while it is anticipated all manifestos will talk about it, the proposed numbers during the last election have been off-charts to the point of cheap, grotesque electioneering rhetoric: 2 Million new jobs by 2012 for USFP, and 1.1 Million for RNI. The trouble with these ambitious projections is that they do not necessarily benefit the unemployed; and whenever a manifesto pledges to create jobs, or reduce unemployment, it seems there is a lot of confusion in these measures: a net creation of jobs will not result in a significant drop in unemployment rate, as it has been the case since 2006: in absolute terms, the number unemployed did not deviate much from 1 Million. What happens is that there are new workers on the labour markets, and government policy cannot do much to create directly those jobs; in 2010 and 2011, there was a net job creation of  around 100,000. Assuming the domestic economy converges to its 5% potential growth, what the economy can do will certainly not go beyond 120,000 job creations per annum. What political parties seem to miss, is that unemployment in Morocco is largely a structural issue, independent from growth and economic activity.

Myth n°4: Generous Increases in Minimum Wage

Increasing minimum wage might be a populist move, but it eventually turn out to be a bust, because it is not endogenous to government policy: unions and businesses shape up the bargaining terms; Furthermore, triumphalist announcements usually mask conservative increases in minimum wage. Much has been made of its potential burden on small business, and the economy as a whole, but in fact, minimum-wage recipients do not observe significant improvements in their purchasing power.

real Minimum Wage income is 8,000 per annum per worker. (Bank Al Maghrib)

Too bad for those government coalition parties: their increases, past and future, do not result in significant results.

Myth n°5: Pensions Upgrades

There are two aspects to this: first, retired elderly are perhaps the most vulnerable population among households because their income does not evolve over time, and therefore have to bear with lower real income. An upgrade in their pensions is a good policy and can work out for the winning coalition. Unfortunately, it does not solve the problem of pension funds solvency, nor does it insure stable standards of living; a one-shot increase might be aright, but inflation looms ahead, and usually catches up over time. So proposed upgrades are, in essence, a cheap measure to buy votes, and the party’s good conscience on their failure to address the pensions issue.

These are but a few inconsistencies I have picked up in reading the sneak peaks of A8 Alliance, USFP and PPS manifestos. more to come, and you will read it here first!

Moroccan Elections for the Clueless Vol.8

It seems Parti du Progrès et du Socialisme (PPS) political party is the first (to my best knowledge) to release their manifesto for the November 25th Elections. About time they did! Well, it is not like we were holding our breath for some ground-breaking, innovative or well constructed document.

I don’t know what to make out of this document. My criticism is justified, in the sense that PPS party has been in office as a junior partner in all government coalitions since 1998. They have had ministers in small and large departments: right from the start, former party boss My Ismail Alaoui was appointed Education minister (thus overseeing the largest ministerial department per human resources and budget spendings) he was assisted by Omar El Fassi as the Secretary of State for Higher Education and Research; And finally, Said Saadi, as Employment and Family minister (the unfortunate protagonist of a failed attempt to push for progressive legislation in favour of women) the same party retained some ministerial posts ever since, with Nabil Benabdellah (current PPS Premier) and Khalid Naciri (hum…) both Communications ministers and Government Spokesmen. Finally, the party has no shortage of academics and young intellectuals -like Youssef Belal, to put together a decent manifesto.

PPS election symbol

The writing's not on the book. (Wikipedia Picture)

Sadly, they did not; perhaps they do not see it as part of the political exercise; or perhaps they know there is already a manifesto somewhere, and theirs has no chance to be carried out.

Let us take a leaf from this manifesto:

” – Réorienter l’investissement vers les secteurs productifs et créateurs d’emplois qualifiés.

  – Inciter les entreprises au réinvestissement des profits à travers des avantages fiscaux”

Well. That’s quite commendable to promote public and private investments; but where is the funding? and what would be the impact of these incentives on growth, domestic investment and on the public finances themselves? How can they get the private sector on board with their policy? It seems they consider the present investment trend is inadequate, and tends to go to non-productive sectors, with limited job creation. That might be true, but the PPS has been part of all government coalitions ever since the Alternance. Are they telling us now that something is wrong with the economy? If they are, why didn’t they do something about fixing it? And while we are at it:

Engagement : Développer les ressources publiques et rationaliser leur emploi.

– Réformer en profondeur le système fiscal sur la base des principes suivants : allègement de la TVA sur les produits
de première nécessité, impôt sur la fortune et les successions, élargissement de l’assiette fiscale, lutte contre la
fraude et l’évasion fiscales, pénalisation fiscale de la rente et de la spéculation, imposition accrue des très hauts
revenus.
– Réévaluer les dépenses fiscales et mettre fin à l’exonération de la grande agriculture
– Prendre des mesures incitatives en faveur de l’épargne nationale.
– Rationaliser les dépenses publiques à travers une gestion axée sur les résultats.
– Réduire le train de vie de l’Etat en luttant systématiquement contre tous les gaspillages
– Redresser les finances publiques et recourir raisonnablement au déficit budgétaire et à l’endettement pour
l’investissement dans les secteurs d’avenir : équipement, éducation…

Is it necessary to remind the reader that Mr Alaoui was also an Agriculture Minister between 2000 and 2002, he did nothing to end the moratorium on agricultural taxes. I mean, this is not some opposition party ready to trash the incumbent government’s record; since they have remained in office for so long, and by the custom of cabinet collective responsibility, what they are denouncing as government weaknesses are, in the final analysis, their own record.

As a matter of fact, there are some quantitative pledges on that manifesto; how they will fund them, or any relative details about them remains to be determined.

* Minimum wage: MAD 15 and indexed on consumer price index.

The way these numbers have been announced is murky at best: kudos for the hourly minimum wage increase to MAD 15, but how will they implement it? Since the present hourly minimum wage is MAD 11.7, is this 28% increase going to be spread across the next 5 years, or is it a one-shot, annual increase for 2012? And how will they apply the CPI indexation?

Let us go for the conservative estimate that this MAD 15 objective is for 2016. That means an annual increase of 5%. Now, they are either already taking into account CPI inflation (around Bank Al Maghrib target rate of 2%) which means real minimum wage increase is going to be 3%, hardly good news, since these levels have been observed in the late 1990s. Otherwise, their inflation indexed increase will be at least 7%. The figure goes even higher if the 28% increase is carried over 2 years intervals, or as an annual increase. The economic cost of such increase, though subject to debate, might not be a sound economic policy, especially when a real variable (income) is tied to inflation.

* 250,000 new jobs

Again, there are no details about the 250,000 new jobs target; are they referring to newly created jobs? Or is it a net creation of jobs? Or is it a target for unemployment reduction of 250,000? They have been clear however, that they will create 250,000 jobs per annum; That means they want to create (or net create) a million jobs by 2016. In any case, it is going to be an almost impossible task: the percentage of active population is on the decline; this means they can only reach their target by giving jobs to the unemployed. At a rate of 250,000 jobs a year, we will certainly reach full employment, no doubt; the question is: how will they do it? how much is it going to cost? What are the considered options for such a policy: taxation, private sector incentives, public investments program, job training… where will the money come from to finance all of this?

* 50% Pensions upgrade

Well, since we know the CMR pension fund is likely to be bankrupt by the end of the decades, I assume this 50% upgrade in pensions means they are considering raising retirement age and/or contributions. Or perhaps privatizing the whole thing altogether? The proposal is too vague to even consider.

* Reduce health cost contribution of households from 54% to 20% * 2% general budget allocated to culture * 2% general budget allocated to sport

The three measures (health, culture and sports) will increase government expenditure alone by 5.8% per annum; that is to say, increasing the Sports department’s budget 4 times from 1.4Bn to 5.7Bn, and Culture budget from 513Mln to 5.6Bn. Additionally, the public share of healthcare cost goes up to 19Bn, an 11.45% annual increase in health expenditure from the current 11Bn. And so, the proposed policies indicate that the projected budget will go up to 310Bn, with no specifics on its breakdown, or commitment to limit the bureaucracy share from these proposed increases. Will these benefit households and individuals? there is little evidence in the manifesto, or elsewhere that it would.

* 150,000 additional social housing units per annum

This is a truly unrealistic target given the present contract agreements signed with the real-estate developers. What will happen is, attached fiscal incentives will grow even more to allure developers and sign up for these procurements; and instead of having 600,000 new proprietary households by 2016, real-estate tycoons will increase their wealth by 2Bn every year, thanks to the exemptions and tax loopholes.

* 750 youth foyer

With the current 510 Foyers across Morocco, this bombastic increase of 47% proposed by PPS means they will allocate only 117Mln out of their commitment to increase Sports department to 5.7Bn. Even their projection, it seems, has been off-charts and will inevitably benefit central government bureaucracy instead of local infrastructure to the youth. 

* MAD 10,000 universal minimum annual income

The only bright spot in an otherwise abysmal manifesto, the proposal conditions the cash relief to the poorest households with putting children in school. As a matter of fact, PPS has been rather generous on this; the number of households living below poverty line is around 340,000 households; considering the average household size of 8 individuals, a the cash relief initiative would cost about 20Bn; they have however stated the scheme is also conditional on the households’ income and origin.

Verdict: Sketchy, vague, wasteful and grossly incompetent with respect to the existing resources at PPS’ disposal. Hopefully, there will be no shortage of manifestos in the coming weeks!

The Middle Class Rip Off

Posted in Moroccan Politics & Economics, Moroccanology, Morocco, Read & Heard, The Wanderer by Zouhair ABH on October 17, 2011

Much has been made of the Feb20 demonstrations, mainly as a sign of middle class unrest and discontent with perceived unfair distribution of wealth and political power. While it is understood only too many citizens have been excluded from, or ruled themselves out of,political representation – because of the generally corrupt and inadequate partisan political apparatus, the same argument cannot be made as easily about economic retribution;

The middle class in Morocco is both a political and economic maze to the observer, remain a tricky and elusive set of individuals, and any proposed criterion to determine the broad characteristics of such population is bound to trigger gainsay and recriminations for its arbitrary, almost deterministic approach. And yet, these are the people that may well hold the key to appease social and economic resentment, drive forward both the political process and the economic transition away from its current quagmire and into genuine prosperity.

The middle income as we define it.

My proposed definition of “Middle Class” does not stray from HCP established nomenclature; first because my own back-of-the-envelope computations tend to be vindicated by HCP findings, and second because the less controversial course is to settle for the Median Income as an indicator of the economic characteristics. The modus operandi is pretty straightforward: households are ranked per income, and then broken down into uniform quintile group (that is, per 20% sub-groups). The median quintile is therefore the third 20% -as it leaves as many households on its left as it does on its right. Then, we consider each quintile’s respective share in gross national income (GNI). Unfortunately, consistency isn’t HCP forte, and the IMF world data fields only 5 dates for the income distribution, further completed with some punctual HCP late figures on the matter: 1985, 1991, 1999, 2001 and 2007.

As we set in to track the median national income between 1999 and 2007, the findings point out a marked decrease in median share, down from 14.97% in 1999, to 14.54% in 2007, and the trend is to be confirmed by subsequent surveys. This dent in median wealth (-2.87%) almost mirrors the average GNI per capita growth over the same period (+2.83%) In simple words, the median income share has gone down at almost the same rate GNI per capita has gone up. And it seems all other quintiles but one have experienced similar trends. The only quintile households with a healthy 3.41% improvement were the top 20%, that is, those earning more than MAD 207,000 per annum (2007 figures).

But let us dig deeper in the “Middle Class malaise”; while it is understood their share in income has fell over time (a tale-telling sign of income concentration in this country) their real income has also gone down. The stated implication is not necessarily true: the share pie per person has grown some 3% a year, so even though it has grown smaller with respect to the whole pie, it may have grown in absolute terms nonetheless. But sadly for the Middle Class, that did not happen; quite the opposite.

But what about real income?

Between 1999 and 2007, median income per household has grown 1.48% in nominal terms. However, when adjusted for average (CPI) inflation,the real income has been steadily decreasing at 0.18%. This means the median households have accumulated a real loss in purchasing power of MAD 13,000 over the considered period. What does this tell us about all these economic policies carried ever since 1999?

And it is not like the median households are the only ones who bore the brunt of economic inequity; again, the top 20% are the only ones who actually improved their real income by MAD 11,000 overtime.The bottom 20% have increased their real income though: an accumulated MAD 51 over the considered 8 years – the top 20% improved their real income 215 times more than the bottom 20%. This is worse than a zero-sum game, it is, quite simply, a game heavily skewed towards the affluent, and public redistributive policies (i.e. fiscal policies) have done nothing to allay the inequity; it has only made it worse.

What holds in 2007 holds equally true for 2011 (even by the most optimistic projections of a stabilized income share with respect to the 2008 survey) as the median 20% saw their income share fall further to 13.2%.

... The Middle Class have been screwed up. In real terms.

A country with a weak middle class who cannot enjoy the proper benefits of growth, cannot sustain itself without serious risks of social unrest and discontent. What is worse, these subsidies the government has been so generously putting on the table only beat the inequity further in, as they benefit those with the highest absolute consumption levels.

Now that these numbers have put in perspective the ailing of our Middle Class, the guileless observer would now understand why a deep, structural change within our institutions and the economics of wealth redistribution need to be thoroughly reviewed.

And yes, Middle Class IS radical.