The Parliament is unlikely give its seal of approval for the Cabinet’s comprehensive tax proposals to fund the salary scale amid wide expectations that this hot issue will be passed along to the next government, economists and observers said Monday.
“I don’t think this proposal will ever be passed by the Parliament even if the Cabinet manages to secure sources of funding for the high wages of the public sectors ,” economist Ghazi Wazneh told The Daily Star.
The Cabinet of Prime Minister Najib Mikati is expected to devote its session Wednesday to the issue in a bid to review a list of tax proposals to finance the massive wage increase.
The proposal is estimated to cost the treasury between LL2.25 trillion and LL3 trillion (around $1.5 to $2 billion) a year, an amount that would surely have dire effects on the economy and the budget deficit.
Mikati realizes that raising taxes under these delicate political and economic conditions could backfire on him and affect his chances to be re-elected in 2013, according to observers.
Most ministers predicted earlier that the Cabinet would approve a package of taxes Wednesday in a bid to appease the UCC. But it is still not clear if the ministers will heed the advice of Central Bank governor Riad Salameh, who will bluntly tell the Cabinet that both the proposed taxes and higher wages would deal a blow to the economy. Salameh favors increasing the wages in installments over the next few years to diminish the negative ramifications on the economy.
Wazneh disclosed the proposed taxes which are being considered by the Cabinet to fund partially or totally the wage increase for the public sector.
The Cabinet is proposing to raise taxes on interest on customer deposits from 5 to 7 percent, which would secure LL260 billion; raising value added taxes on luxury goods such as imported goods, tobacco and alcoholic beverages from 10 to 15 percent, which would generate LL50 billion; adding fees on invoices collected by the government to secure LL50 billion; adding fees on telephone bills to generate LL120 billion; and raising taxes on construction permits to generate LL600 billion.
“First of all these taxes will not be sufficient to fund the wage increase for the civil servants, and more importantly these taxes will have a devastating impact on the economy and the real estate sector,” Wazneh argued. He warned that taxes on real estate profits would literally cripple the property sector in Lebanon. “Furthermore, taxes on interest on deposits would affect the growth of the banking sector. The flow of deposits would surely fall if this tax is enforced,” he added.
Wazneh cautioned that the allocations for the salary scale would surely swell in the coming years, and according to one study the Cabinet will have to earmark a whopping LL8.61 trillion in 2017 to fund the wages.
Echoing similar views, former Finance Minister Jihad Azour told The Daily Star the Cabinet did not take into consideration that other civil servants who were not accounted for would eventually demand similar wages as their colleagues in public departments.
“They did not account for the employees of the state-owned enterprises such as Electricite du Liban, the National Social Security Fund, Council of the South and the Fund for the Displaced. We are talking about 22,000 people,” Azour said. He added that Cabinet did do its math when it decided to embark on funding the salary scale. “They [Cabinet] did not take into consideration that this spending is recurrent and will pile up in the coming five years,” Azour stressed.
“What is even worse is that the average salary of public employees will be bigger than that of employees in the private sector , and in the future many people will start applying for public posts. If this happen then the size of the public sector will swell,” Azour said.