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May 28 2012

Jordan Adopts Austerity Measures Aimed At Narrowing Budget Deficit

Jordan Adopts Austerity Measures Aimed At Narrowing Budget Deficit

The Jordanian cabinet on 19 May endorsed an austerity package that is expected to save up to JD300mn ($423mn) from the projected budget deficit, the Minister of State for Media and Communications Samih Ma'atah has announced. The austerity measures include plans to raise taxes on banks and mining companies, but are not expected to hike food or fuel and electricity prices. Earlier this month Jordan’s Prime Minister Fayiz Tarawnah said that austerity measures were coming soon and indicated that electricity rates and premium gasoline prices were set to increase (MEES 21 May). But there is strong resistance in parliament for such increases. Mr Ma'atah added that the set of measures reflect the government’s pledge to tackle the economic crisis by reducing government spending and boosting revenue. The measures will seek to commit all ministries and government institutions to a cutback of 15% in operational costs and 10% in capital spending. They also call for a cut of 20% in salaries of the prime minister and his ministers.

The government will also amend the income tax law based on the principle of progressive taxation, especially in the banking sector and mining industries. The sales tax law will be amended in order to address flaws in the exemption mechanism for certain goods and services. The minister added that the government will introduce new taxes on luxury items that will not have any impact on the living standards of people. The government intends to maintain its policy of no new recruitment in the public sector except in the case of the ministries of health and education.

In the past few years Jordan has provided a social safety net aimed at mitigating the effects of a high cost of living for its people by subsidizing certain food items and some petroleum products. The measures were intended to defuse street protests against rising prices and possibly other political unrest. But the government is no longer in a position to carry on with the subsidies, given its large budget deficit of JD2,060mn ($2,905mn) in 2012, even after factoring in foreign aid. According to the Minister of Finance Sulaiman Hafiz, government subsidies currently total JD2,386mn ($3,364mn) and are not longer sustainable.

© Copyright MEES 2012.

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