BEIRUT: Lebanon’s chances of approving a draft law to finance a controversial salary scale are dim if not nonexistent, ministers and experts say.
The issue of raising the salaries of civil servants, Army and security personnel and public school teachers has triggered a heated debate in the country amid clear warnings from Central Bank Governor Riad Salameh that the move would cause inflation to rise by 2-3 percent a year and reduce job opportunities by at least 4 percent.
Economy and Trade Minister Nicolas Nahas told The Daily Star that he was one of the ministers who expressed deep reservations about implementing the salary scale or raising taxes at this time.
“Salameh and I have stated our minds in the Cabinet. Now it’s up to the ministers to study this bill very carefully and make the final decision on it,” Nahas said. He added that the salary increase would cause the size of the public debt to swell and would also increase the budget deficit.
Asked about the possible reaction of the Union Coordination Committee if the bill is not passed in the Cabinet or Parliament, Nahas said that the union has the right to express its views in a democratic way.
“Anti-government demonstrations are not confined to Lebanon. There are demonstrations in many countries, but governments usually do not bow to these pressures,” Nahas argued, alluding to anti-austerity demonstrations in Greece and Spain.
Nahas said that the Cabinet will not discuss the salary scale or the taxes to fund them in Wednesday’s session.
“We have not set a date for discussing the issue of the wage increase in the Cabinet. This matter will be raised, but we don’t know when,” he added.
In the paper he presented to the Cabinet last week, Salameh stressed that the salary increase would also further increase the balance of payments deficit, which would certainly affect the level of consumption in Lebanon.
The governor reminded the ministers that the Lebanese economy will have a GDP growth of 1-2 percent at most by the end of this year.
He noted that apart from the banking sector, all of the economic indicators recorded this year were negative to say the least.
Salameh said the public debt has surged from $40 billion in 2006 up to $56 billion in September 2012, an average increase of $2.6 billion annually.
Finance Minister Mohammad Safadi estimated the cost of the salary scale between $1.5 billion and $2 billion in the first year.
Bankers and most businesses have cautioned that the Lebanese economy cannot endure more taxes.
One particular proposal that has infuriated the banks is to raise the tax on interest on customer deposits from 5 to 7 percent.
Economist Ghazi Wazni believes that the proposed taxes would not achieve the desired results – on the contrary, they would contract the economy and scare away investments.
“The effect of these taxes on public finances will be very costly and nonproductive. The rise in current expenditures such as salaries will come at the expense of capital investments [investments in infrastructure]. The rise in budget deficit will also prompt ratings agencies to revise their ratings of Lebanon more negatively,” Wazni said.
He added that if the government refuses to pay salary increases in installments, inflation will reach record highs and the purchasing power of consumers will certainly be affected.
The UCC has called for another strike on Nov. 27-28 to push the government to approve the draft legislation.
But there is a general feeling that even the General Labor Confederation is reluctant to adopt the demands of the UCC because it realizes that more taxes will cause prices of consumer goods to surge to unacceptable levels.
The World Bank, International Monetary Fund and most ratings agencies have advised the Lebanese Cabinet against raising spending during these difficult times.
Other experts say that Lebanon cannot hastily increase current spending while most European countries and the United States are applying across-the-board austerity measures.