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Hassan presents 'ambitious' 2010 budget with no VAT hike

16 April 2010

BEIRUT: Finance Minister Raya Hafar Hassan on Thursday submitted the long awaited 2010 “ambitious” draft budget to the Cabinet, noting that this budget does not call for any value-added tax (VAT) increase.

According to the new budget, the deficit in spending in 2010 will slightly rise to 30.43 percent from 30.15 percent in 2009.

Total budget in 2010 will rise to LL18.652 trillion ($12.3 billion) from LL16.395 trillion in 2009, an increase of LL2.347 trillion or 14.39 percent.

Speaking at a news conference, Hassan said the expenditures in the new budget would rise by 148 percent for investment allocations and another 24 percent for social services.

The budget, which will be reviewed by Cabinet and then Parliament, calls for increasing the tax on interest rates on customer deposits from the current 5 percent to 7 percent.

Among the measures noted in the new budget is increasing property registration for properties valued over LL750 million from 5 percent to 7 percent.

Properties valued less than LL750 million will not be affected by the new increase.

In addition, the government will exempt students from registration fees in public schools.

Penalties on late taxes and fees as well as fines on municipalities’ taxes, traffic fines and car sale power of attorney will also fall by 90 percent.

“There are no higher VAT rates, but there will be slight increase in taxes in some areas. This will be met with an array of exemptions and cancellations in other sectors,’ the minister said.

Labor unions and some political parties feared that the government may raise the VAT to 12 or 15 percent to meet rising spending in some sectors.

There was a deep concern that the trade unions would call for an open strike if the government hiked taxes.

“I think people will be quite happy that they won’t reach deep into their pockets to pay higher VAT rates. But the parties and trade unions will wait a little bit before giving their final opinion on the new budget,” an informed source told The Daily Star.

Lebanon has literally been without a budget since 2005, the year that former Premier Rafik Hariri was assassinated.

Hassan said that financing some of the new projects would be done through soft loans and allowing the private sector to be more involved in some of the infrastructure projects.

She also pledged to settle the government’s due to the National Social Security Fund, contractors, property appropriations, hospitals, Council of the South and compensations for the families that were affected by the July 2006 war against Lebanon.

Hassan also stressed that the issue of the displaced in Lebanon would be fully dealt with within three years.

“But we can’t afford extra spending in the budget because this step could affect negatively the budget deficit,” she said.

The International Monetary Fund and several rating agencies have urged the Lebanese government to avoid increasing expenditures to alarming proportions, warning that such a rise in spending would mean the budget deficit will rise.

“The Finance Ministry has completed the 2010 draft budget based on the ministerial statement. We are trying to meet the social needs of citizens as the Cabinet promised earlier,” Hassan said.

“Our first and last concern is to reflect the needs of the people and this is clear in the new budget,” Hassan said.

Hassan emphasized that she was encouraged by the positive political and economic climate in the country as well as the rise in debt to GDP and flow of investments and capitals.

“Against these positive developments, we see a golden opportunity for the Lebanese economy and we must seize this opportunity and implement the necessary reforms,” she said.

The new budget calls for increasing investment allocations to 6.1 percent of the country’s GDP, or LL2 trillion in 2010 compared to LL800 billion in 2009.

Out of this LL2 trillion, LL1.2 trillion will be earmarked for social, medical and health services, while the remaining LL800 billion will be allocated to projects such as electricity, water and roads.

Total projected government revenues in 2010 will reach LL12.977 trillion compared to LL11.398 trillion in 2009, an increase of 13.94 percent.

This means that the budget deficit this year will reach LL5.675 trillion compared to LL4.916 trillion in 2009.

Hassan said that the ministry has allocated LL483 billion for the construction of new power plants with a 700 MW capacity and installation of electricity transportation networks.

Energy and Water Minister Jibran Bassil submitted his plan to the Finance Ministry a few months ago.

Bassil’s plan calls for the construction of more electricity plants to reduce the deep power shortage. At present, Lebanon’s aging power plants produce less than 1,600 MW of electricity while the actual needs exceed 2,300 MW.

The cost of debt servicing in the 2010 budget is projected to reach LL6.557 trillion compared to LL6.441 trillion in 2009.

Hassan said that the government may tap the local and international markets to finance some projects at low interest rates.

“We will seek soft loans to finance some infrastructure projects but we will make sure that this borrowing will not have a big effect on the size of the public debt,” she added. – The Daily Star

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