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Mikati’s draft budget needs more work, economists say

The Cabinet did not produce an ambitious budget, analysts say.

BEIRUT: Prime Minister Najib Mikati may have managed to produce a hastily made budget but this bill has failed to receive the desired support from economists and business leaders.

It is true that the draft budget, which has yet to be approved by the deeply divided parliament, proposes no significant new taxes, nevertheless the bill fails to say how it intends to find the funds to cover the salary increase for the public sector.

“There may be no significant taxes in the draft budget, but the bill does mention fees on fiscal stamps and flat fees on every phone and cellular bill to name a few,” Nicolas Chammas, the president of the Beirut Merchant Association, told The Daily Star.

Chammas insisted that the government could have drafted a better budget which clearly stated how it would improve tax collection, cut waste in public departments and allow the private sector to play a role in infrastructure projects in order to alleviate the pressure on the treasury.

“What I want to know is how the government will secure the additional revenues to cover the salary increases of government employees,” he said.

The Cabinet said that the salary scale for the government employees has not been included in the new budget but promised to raise this issue next week to find suitable ways to cover the additional expenses.

“Why should the productive sectors and private companies be forced to pay more taxes to cover the deficit and additional spending? Why don’t they [the Cabinet] cut waste in public departments and improve collection of tariffs from the customs departments?” Chammas asked.

He emphasized that there are many unregistered companies in Lebanon that operate without paying any taxes.

Louis Hobeika, professor of economics and finance at Notre Dame University, suggested that the government raise LL2,000 tax on every 20 liters of gasoline. “This tax will not have a serious burden on the citizen since the prices of gasoline has dropped significantly in the past few weeks,” he added.

He wondered why the Cabinet had not called for taxes on illegal properties that were built along the coast during the war. Hobeika also saw no reason for the government not to raise taxes on capital gains and profits from real estate transactions.

Other economists felt the draft could not pass in Parliament if the controversial closing accounts for the previous years were not properly audited.

“The draft budget for this year will have the same fate as its predecessors. This bill cannot get the seal of approval from the legislators if the closing of all accounts from 2005 are not checked by the Accounting Department,” economist Ghazi Wazneh told The Daily Star.

He added that as far as the rating agencies were concerned, the deficit-to-GDP ratio this year would be 8.5 percent and this ratio was very acceptable under the current circumstances.

“It is true that the government did not include new taxes with the exception of minor fees in fiscal stamps and small taxes on luxury items, but nevertheless Mikati and the Cabinet ministers lowered allocations for investments and this helps to keep the budget deficit under control,” Wazneh said.

The projected deficit under the new bill is LL5.6 trillion ($3.7 billion) or 26.5 percent of total spending.

The draft budget estimated Lebanon’s GDP at $42.5 billion based on the annual growth which the country achieves each year.

“The government decided not to raise taxes but it also decided not increase spending and this pleases the rating agencies and the International Monetary Fund,” Wazneh explained.

Analysts say the passage of the draft budget requires the finalization of the closing accounts and this is nearly impossible this year.

The Finance Ministry has said that there are numerous irregularities in the previous accounts since 2005 because these accounts have not been properly audited and this draw serious questions about their authenticity.

Wazneh said that the government had reduced investment allocations from $2 billion to about $1.2 billion.

He added that the government had told the rating agencies that it could not raise taxes at this stage due to the slow economic growth, delicate political conditions and volatile situation in the region.

Some international rating agencies maintained the stable outlook for Lebanon as in the case of Fitch, which affirmed the country’s long-term foreign and local currency Issuer Default Ratings, short-term foreign currency IDR, and the country ceiling at “B.”

 
A version of this article appeared in the print edition of The Daily Star on July 14, 2012, on page 4.

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