Lebanon News

Key questions unanswered in wage hike bill

People protest against the new rent law in Beirut, Friday, April 11, 2014. (The Daily Star/Mohammad Azakir)

BEIRUT: Parliament’s Joint Committees referred late Friday a controversial draft law to raise the salaries of public sector employees to the general assembly after a seven-hour marathon session that failed to resolve key contentious issues in the bill.

MP Ibrahim Kanaan, who chaired the committees’ session, said the proposal would be ready by the beginning of the week in anticipation of a parliamentary vote that would be called by Speaker Nabih Berri, possibly as early as next week.

MPs failed to reach an agreement on when the wage hikes would come into effect, whether they would be retroactive and if they would be paid in installments, as well as on the increase in value-added tax and on details of the raises for teachers.

Unions have already opposed proposals to pay the hike in installments.

MPs expect the Parliament session debating the bill to witness heated debates between those who want to pass the wage hike at any cost and those who worry that it could deplete state coffers, already reeling under tough economic conditions.

The wage hike is expected to cost the treasury some $1.6 billion annually amid a widening budget deficit that has reached 11 percent of GDP in 2013 and prompted several rating agencies to downgrade the outlook for Lebanese banks that hold the bulk of the sovereign bonds.

The announcement came as the country’s top banks softened their opposition to the plan, set to feature tax hikes on bank profits and interest from deposits.

Earlier Friday, Finance Minister Ali Hassan Khalil and the Association of Banks in Lebanon began discussions to reach a compromise agreement over the proposed taxes.

“The meeting was positive and we hope to reach an agreement over the next few days,” Head of ABL Francois Bassil told a news conference following a meeting between Khalil and a delegation of bankers.

Before holding talks with Khalil, the ABL delegation had requested an appointment with Berri, but the latter refused to meet with bankers and lashed out at the ABL for observing a one-day strike in protest against the proposed taxes, saying local banks make “obscene” profits from clients.

Banks remained closed as the association pleaded with the speaker to help reach a solution suitable for both the private and the public sector.

In remarks carried by the National News Agency, Berri insisted that the ABL’s president, “Francois Bassil, publicly apologize for verbally attacking lawmakers and Parliament.”

The ABL had criticized lawmakers for making “random decisions” for political purposes, warning that such a step would have negative effects on inflation rates in the country, the stability of the national currency and the purchasing power of the Lebanese.

Amal MP Hani Qobeissi filed a lawsuit against Bassil for defamation and slander against lawmakers and politicians, but later retracted the lawsuit following Khalil’s meeting with bankers.

In his news conference, Bassil made a veiled apology to Berri following his criticism of lawmakers Thursday after Parliament’s Joint Committees proposed to introduce a 7 percent tax on the interest income earned by commercial banks on assets deposited at the central bank.

Lawmakers had also proposed to increase the tax on banks’ net profits from 15 to 17 percent and raise the tax on interest earned on deposits from 5 to 7 percent.

Bassil warned that the proposed taxes would lead to a hike in interest rates that would affect low to middle income families.

Increasing the tax on interest earned on deposits will generate $186 million for the treasury, while taxing the interest earned on bank assets deposited at the central banks would generate around $146 million.

Adopting softer rhetoric Friday, Bassil said banks were willing to accept a tax hike on net profits as long as it is “reasonable.”

A banker told The Daily Star that if the proposed tax increases on banks were enacted without amendment, they would very likely lead to an increase in the lending rate.

Banks also fear that international rating agencies, such as Moody’s, would downgrade Lebanon’s sovereign rating even further if the tax measures and the wage hike were to be adopted.

Some bankers have hinted that they could decide to stop financing the public debt in protest of current economic and financial policies.

Among other proposals to finance the pay raise, the Joint Committees approved fines for property violations; the annual fine amounts to 2.5 percent of the value of any illegally obtained land and 7.5 percent of the value of any illegally constructed building on seafront properties.

Voicing fears of repercussions that could ensue following the approval of the draft law, Bassil appealed to the speaker to bridge the gap between lawmakers and banks.

“I urge Speaker Berri to use his wisdom and his patriotism to narrow the divide and resolve the problem,” he said.

Sources with knowledge of the meeting with bankers told The Daily Star that the bankers had agreed that they could afford to pay for the tax hikes.

Khalil pointed out in the meeting that Lebanese banks earn about $1.8 billion of profits from their treasury bonds, and that the tax hike on deposit interest will mean that the banks pay about $400 million annually to the state.

Khalil also told the bankers that depositors would not flee from Lebanese banks since interest rates on deposits are already higher than in the rest of the world.

Meanwhile, tenants held a protest in front of Prime Minister Tammam Salam’s Beirut residence against a new rental law.

A version of this article appeared in the print edition of The Daily Star on April 12, 2014, on page 1.




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