Pointing out the weakness in Lebanon’s 2015 draft budget

Published April 20th, 2015 - 01:27 GMT

Finance Minister Ali Hasan Khalil’s 2015 draft budget is not expected to be ratified by Cabinet or Parliament unless the bill is totally revised or amended to make it more realistic, insiders, former ministers and economists said Friday.

“Under the pretext of financing the wage hikes for public school teachers and civil servants, Khalil increased spending by almost 30 percent compared to 2014 and added more taxes at a time when the economy is experiencing a sharp slowdown. This does not work,” a financial expert close to government circles told The Daily Star.

The bill, which projects total spending of LL23.362 trillion ($15 billion), revenues of LL12.108 trillion and a deficit of LL7.728 trillion, was discussed Thursday by Cabinet, which agreed to postpone deliberations on the issue until Tuesday.

The LL23.362 trillion in spending is equal to 30.7 percent of Lebanon’s GDP, and compares to LL20.500 in 2014, registering an increase of 14 percent.

The bill takes into consideration a more than 10 percent or LL355 billion increase in the salaries of civil servants and public school teachers.

The reason for this increase is a rise a more than 7 percent or 11,700 rise in the number of state employees.

The government has drafted and hired over 10,000 military and security personnel to help the security forces maintain law and order.

There have been deep divisions among ministers on whether the salary scale and new taxes should be included in the new bill amid calls to review the draft budget before submitting it to Parliament.

To finance the salary scale, Khalil has proposed a series of measures in the bill such as raising taxes on interest on bank deposits from 5 to 7 percent, raising taxes on capital gains and profits from 15 to 17 percent, increasing taxes on real estate, hikes in road fees, imposing a 4-percent fee on the import of gasoil and fuel oil, and increasing fiscal stamp fees from LL3,000 to LL4,000, in addition to other taxes.

“He [Khalil] claims the increases in salaries are a reflating measure. But in my opinion this measure is negligible when compared to the puncture it is going to cause by taking away from the economy an additional $1.5 billion,” the expert said.

He questioned why Khalil has targeted the two main engines of growth: banks and real estate.

“Why should we add more taxes on these vital sectors?” the financial expert asked.

He stressed that the draft budget had no vision or planning and said the Finance Ministry needed new blood and people with fresh ideas.

“There is no reason to promise higher salaries to civil servants and school teachers if you don’t have the means to fulfill this promise,” the expert argued.

Former Finance Minister Jihad Azour pointed out that there were some loopholes in the 2014 draft budget that needed to be addressed.

“The price of oil in the international markets fell and the euro depreciated and yet the minister made no [mention of] these changes but on the contrary increased the allocations to state-owned Electricite du Liban,” Azour said.

He added that the bill came late “but still it’s better late than never.”

“When it comes to the policy side, I was waiting to see what the policy of the government was when it came to reducing the budget deficit. What is the accepted level of the budget deficit? This bill does not explain it,” Azour said.

The former minister expressed his disappointment because he did not see a clear policy on the energy side.

“I am in favor of reforming the subsidies system for energy. This subsidy system is not effective at all. In fact, the rich people inLebanon are benefiting from this subsidy and not the poor,” Azour said.

He proposed removing this subsidy and instead offering the poor a cash allowance for transportation each month.

“This is one way to help the poor but I don’t think this subsidy has done any good for the Lebanese. We know where they live [the poor] and we know who they are. There are studies that determined the size of the poor in Lebanon,” Azour explained.

He emphasized that Lebanon also needed over $10 billion in investment in infrastructure including in electricity, water and roads.

“One way to finance these huge projects is to seek a partnership with the private sector because the state does not have the means to carry out such a task,” Azour said.

He also proposed a global taxation system in Lebanon in order put all the taxes in one box.

“I am in favor of taxes on capital gains. But I want the proceeds from these taxes to reduce the deficit and not finance the salary scale. Recent studies show that the average salaries of government employees are better than those in the private sector,” Azour said.

He added that it was more advisable to improve the social, medical and educational benefits for the public instead of raising salaries in this manner.

By: Osama Habib

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