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Taxes will not solve the deficit problem.

Summary: The unpopular proposal to raise taxes on gasoline by LL5,000 to reduce the budget deficit has again illustrated the dilemma of the political class which always searches for peacemeal solutions for a mammoth financial problem.

BEIRUT: The unpopular proposal to raise taxes on gasoline by LL5,000 to reduce the budget deficit has again illustrated the dilemma of the political class which always searches for peacemeal solutions for a mammoth financial problem. This suggestion caused a deep rift among the ministers and also triggered wide condemnations from trade unions, most political parties and civil societies.

The economists were divided on the proposal to raise tax on gasoline but all of them agreed that these short-term solutions are not sufficient to address the country's massive public debt and rising fiscal deficits.

"I am completely against it [taxes]. It's wrong to slap any tax amid economic stagnation, political uncertainty and lack of consumer confidence. There are other ways to increase state's revenues without increasing taxes," Nassib Ghobril, the head of economic research at Byblos Bank, told The Daily Star.

He stressed that the decline in the price of gasoline is the only breathing space for households in Lebanon, and has increased the disposable income of people, allowing them to spend their money on other things.

"This is a breather for households and shouldn't be taken away," Ghobril argued.

In his opinion, the government can find other alternatives to boost revenues provided there is a strong political will. "The government can improve tax collection and cut waste. We have 30 percent of our economy informal and this means that 30 percent of our economy is not taxed."

The informal economy refers to activities and income that are partially or fully outside government regulation, taxation and observation.

Ghobril believes that if the government properly improves tax collection across the board then the Treasury can increase revenues by $700 million to $800 million a year.

Citing an example of waste and tax evasion in Lebanon, Ghobril said that half of the registered vehicles in the country have not paid their mecanique fees to the state.

Economist Kamal Hamdan was equally against any type of taxes under the current circumstances.

Hamdan said that time has proved that this political system is unable to end the various economic problems of the country.

"Before mulling new taxes to increase revenues we need to reform the political system and one way to do it is through a new election law based on proportional representation and implementation of a civil law," he added.

Hamdan called for deep fiscal and economic reforms in line with political reforms. He noticed that there is rampant waste in most government departments and this issue should be addressed before even thinking of adding taxes.

Many economists point out that most government departments and state agencies are overstaffed and many of them have political appointees. But due to the delicate sectarian balance in Lebanon, successive governments did not dare to address the issue of overstaffing and preferred to ignore this problem.

Economists agree that the fall in the prices of oil in international markets have reduced the deficit of state-owned Electricite du Liban by more than $700 million in the first nine months of 2015.

However, the drop in the prices of oil has reduced the VAT and taxes collected on imported fuel oil.

The political stalemate and failure to elect a president of the republic has added to the woes of the economy. "The election of a president and the formation of a national reconciliation government can send a positive signal to investors. But even the election of a president may not bring the long-term result if the government did not implement real economic and fiscal reforms," one economist said.

The Finance Ministry has not yet disclosed the full fiscal results for the entire 2015. But the figures released by the ministry in the first nine months of 2015 show that fiscal deficit widened by 17 percent to $2.6 billion, equivalent to 26.5 percent of spending.

Government expenditures reached $9.84 billion, down by 2.9 percent from the same period of 2014, while revenues dropped by 8.6 percent to $7.23 billion.

The widening of the deficit reflects a drop of $681 million in total revenues, as overall expenditures fell by $294.8 million year-on-year in the first nine months of 2015.

The decrease in government revenues is due to a decline in nontaxable revenues, with nontaxable budgetary receipts falling by 5 percent to $1.54 billion and Treasury receipts dropping by 56.2 percent to $407.6 million. Debt servicing totaled $3.28 billion in the first nine months of 2015 and increased by 6.2 percent year-on-year.

It accounted for 33.3 percent of total expenditures and for 37.5 percent of budgetary spending, and it absorbed 45.4 percent of overall revenues and 48.1 percent of budgetary receipts.

Finance Minister Ali Hasan Khalil has yet to present his draft budget to the Cabinet and Parliament for approval. Lebanon has been without an official budget for more than 10 years and there is no indication that this issue will be solved in the foreseeable future.

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Publication:The Daily Star (Beirut, Lebanon)
Geographic Code:7LEBA
Date:Feb 12, 2016
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