Bankers balk at plans to fund pay hike

Taxes on real estate investments are among the proposals to finance the salary increase. (The Daily Star/Hasan Shaaban)

BEIRUT: Bankers and businessmen brushed off the Cabinet’s plan to raise taxes to finance the salary raises for public sector employees, while Prime Minister Najib Mikati stressed that these taxes will not have dire effects on the economy and the low income families.

The Cabinet approved Thursday a draft law for public sector salary increases without any amendment that has been demanded by Labor Coordination Committee.

Among the proposals mulled over by the ministers to fund the salary raises are taxes on real estate investment, raising taxes on interest on customer deposits from 5 percent to 7 percent and fines on illegal seashore properties that were built on public properties during the Civil War.

Bankers explicitly expressed reservations to tax hikes on interest on customer deposits from 5 to 7 percent and some of them stressed that this proposal runs contrary to the law.

One banker who spoke on condition of anonymity told The Daily Star that the Cabinet cannot raise taxes to finance the salary increase alone.

“Taxes should be part of a general budget and not be tailored for a specific purpose. To make it simpler, the Finance Ministry is not authorized by the law to come up with a series of taxes to finance the salary increase. If they (ministers) included these taxes in the budget then this would be a different story,” the banker said.

Joe Sarrouh, the adviser to Fransabank’s chairman, told the paper the Cabinet should first implement reforms and cut waste in public departments before contemplating new taxes.

“No taxation without representation. There are so many things that need to be addressed and revised before contemplating higher taxes. Where are the reforms and what happened to cutting waste? All these issues should be raised first by the Cabinet” Sarrouh said. He added that this type of tax was not accepted in the past and would not be accepted now.

But Sarrouh admitted that raising taxes on interest on customer deposits may not drastically affect the Lebanese banking sector.

“I don’t think that raising taxes on interest on deposits will have a negative impact on the banking sector in the short term. I also don’t believe that depositors will take their money somewhere else especially since most countries in the region are passing through tough political problems,” Sarrouh said.

Bankers generally agree that the interest rates offered by the Lebanese banks are still better than most countries in the world.

But the bankers don’t support raising such taxes under the current political and economic conditions.

One banker suggested that banks may be reluctant to subscribe to the government’s treasury bills if the Cabinet decides to raise taxes on interest on deposits.

He added that close to LL18 trillion ($12 billion) of treasury bonds and Eurobonds will mature next year and obviously the Finance Ministry will find it difficult to convince banks to subscribe to the country’s bills.

Francois Bassil, the chairman of Byblos Bank, warned that the endorsement of the salary increase would definitely deal a blow the struggling Lebanese economy.

“I don’t believe that the parliament will approve the salary increase because eventually they will resort to their conscience and wisdom. They are fully aware the price the economy will pay if the salary increase is passed,” Bassil said.

He argued that the Lebanese government does not have the means and the resources to raise public sector salaries, especially since the economy is experiencing slow growth.

Bassil added that in normal times, the proposal to raise taxes on interest by 2 percent could be reasonable and acceptable. “But you can’t expect us to approve such a tax under the current conditions,” he said.

Mikati assured that taxes, fines and fees to finance the new salary increase for the public sector would be applied to sectors far removed from the daily lives of most citizens.

“Financing the salary increase will come from sectors that do not directly affect the daily lives of citizens, including fines imposed on coastal property violations,” Mikati said on his Twitter feed.

“No to salaries without revenue and no to revenues that burden the citizens or new taxes,” he proclaimed.

A version of this article appeared in the print edition of The Daily Star on September 08, 2012, on page 4.




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