Khalil considering taxes to finance salary scale

File - Banks street in Beirut, Wednesday, Sept. 25, 2013. (The Daily Star/Mohammad Azakir)

BEIRUT: Finance Minister Ali Hasan Khalil is contemplating different types of taxes to finance the revised salary scale, a source at the ministry said Wednesday.

“We haven’t written anything yet but the minister told us [no idea is off limits] to generate revenues in order to finance the salary scale,” the source told The Daily Star.

He stressed that all options were on the table, but declined to give further details about the taxes or the ceiling of the new budget.

The source stressed that Khalil and his team were now exchanging ideas on how to finance the salary scale.

The source refused to say when the draft budget would be ready.

However, another source insisted that Khalil had some clear ideas on how to raise taxes.

“Khalil is determined to include an item on financing the salary scale in the budget he is preparing for 2014. It seems the minister favors the idea of raising taxes on interest generated from customer deposits from the current 5 percent to 15 percent, and hiking taxes on profits from real estate transactions to 15 percent,” the source told The Daily Star.

According to the source, who spoke on condition of anonymity, Khalil was also determined to implement new taxes on properties, an idea which has not been adopted by any previous government.

But these ideas on new taxes could anger the private sector in general and the banks in particular.

Former Finance Minister Mohammad Safadi had proposed increasing taxes on interest on deposits to 7 percent, but even this modest raise was rejected by the Lebanese banks.

Bankers argue that raising taxes on interest rates on deposits would discourage depositors from putting their money in local banks.

They warn that Lebanese depositors will not hesitate to move their money to other countries where taxes are lower.

However, it remains to be seen whether Khalil and his team can draft the 2014 budget and secure its approval from Cabinet and Parliament before the presidential election in May of this year.

The source believes that Khalil is apparently influenced by former Labor Minister Charbel Nahhas, who advocated higher taxes on companies’ and banks’ profits.

“Khalil, just like Nahhas, believes the state can generate LL800 billion in revenues from the sea properties. Khalil can generate this income in stages,” the source said.

The former Cabinet paid part of the revised salaries to government employees and public school teachers in 2012.

But the Union Coordination Committee, which groups government employees and public and private school teachers, is keen to push the government and Cabinet to pay the remainder of the increase and have even threatened to take to the streets if officials stall in meeting their demands.

Experts estimate that the new salary scale will cost the treasury around $1.4 billion a year.

Economist Ghazi Wazne voiced support for the demands of the Union Coordination Committee and rejected the notion that raising salaries would cause more unemployment and increase inflation.

“If the government applies reasonable taxes then the treasury would easily finance the salary scale,” Wazne told The Daily Star.

But other economists do not support imposing new taxes to finance the salary scale.

“Our politicians want to act like Hercules. They don’t hesitate to slap taxes even if they realize that these taxes will have catastrophic results on the fragile economy,” economist Elie Yashoui said.

He said any tax at this moment would widen unemployment and increase inflation to alarming levels.

“Instead of raising taxes, the Finance Ministry should borrow money from the banks to finance the salary scale. We already have a public debt of $65 billion. If we borrow $450 million in the first year and $450 million in the second year, then we can easily finance the salary scale without impacting the economy,” Yashoui argued.

Rock Muhanna, the dean of business and economics at Sagesse University, said one of the first priorities of the new Cabinet was to cut waste and address the problem of redundant employees in public departments to finance the salary scale.

“We have 28,000 public school teachers and 10,000 of them are not giving any courses because some of the schools have more teachers than students. I am not saying we should lay off the redundant teachers. We can relocate them to other departments that suffer from shortages in employees such as the Finance Ministry,” he argued.

“How can we pay salaries for employees at the railroad and the oil refineries and we all know that these facilities have not been operating for many years?” he asked.

A version of this article appeared in the print edition of The Daily Star on March 20, 2014, on page 5.




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