Finance Minister Mohammad Safadi said over the weekend that his ministry was committed to settling all financial dues to cover for a public sector wage increase that became effective in February. The minister added that $400 million would be paid by the end of September on top of $600 million that has been settled in arrears to contractors since the beginning of the month.
Safadi rebuffed reports that his ministry was delaying payments.
“These reports are utterly incorrect,” the minister said.
But he warned that if suggested tax hikes to fund the salary scale were rejected , the government would not be able assume its financial obligations.
“If suggestions for new taxes are rejected, how will we be able to cover the salary scale?” he asked in remarks to the Central News Agency Saturday.
Prime Minister Najib Mikati had stressed that Cabinet would not backtrack on the promised salary increase.
“We are not backing down from this issue. The decision has been made in Cabinet, and we are looking to guarantee sources of funding for the hike,” Mikati said.
“The Cabinet is taking its time in this matter, with the aim of finding sources [of revenue] that do not burden citizens, the economy or monetary stability,” he added.
Mikati was responding to the Union Coordination Committee, a coalition of private and public school teachers and public sector employees, which threatened Thursday to stage a nationwide strike within 10-days if the government failed to implement the long-awaited salary increase.
The committee is asking the government to refer the bill, which it has already approved, to the Parliament for final approval.
The Cabinet is still studying the means to fund the increase, which will cost the treasury around $1 billion a year, according to estimates.
In a bid to fund the salary hike, the Cabinet has levied new taxes , slapping an additional LL1,000 on every land line and cellular bill, raising taxes on the profits netted by lottery winners from 10 to 15 percent, and imposing fines on people who maintain illegal coastal properties.
The Cabinet has said it will pay the raise over a five-year period.
In remarks published by the daily An-Nahar, Mikati said that there was no cause for the committee to call a protest, as the government is committed to referring the salary increase to Parliament, but only after having figured out how to secure the money to fund the hike.
“There is no reason to return to protesting. Since the government is going along with the [increase], why protest? And for what?” he asked.
Central Bank Governor Riad Salameh said the salary increase was essential but must not have monetary consequences that lead to inflation, which in turn would increase the balance of payment deficit.
“Pumping liquidity [into society] all at once [encourages] consumption and increases imports, which in turn raises trade deficit, not to mention the treasury’s deficit,” Salameh said.
Lebanon’s Economic Committees, a grouping that represents the private sector, have warned that the new pay scale would have “catastrophic” consequences on the country, and have renewed their rejection of any tax increases, particularly the proposed hike on taxes that banks pay to the state.