Al-Ahram Weekly Online
31 May - 6 June 2001
Issue No.536
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For richer or for poorer

Parliamentary debate of the budget, the sales tax and the mortgage law provided MPs with an opportunity to question the class-bias of the government's economic policies. Gamal Essam El-Din, in the People's Assembly, reports

Kamal Ahmed, holding his 45-page interpellation on alleged violations at the Cairo Stock Exchange
Photo: Mustafa ElSenousi
Medhat Hassanein and Youssef Boutros-Ghali, the ministers of finance and economy respectively, were taken to task by MPs during the past three weeks for developing policies that deputies, including some from the ruling National Democratic Party (NDP), say favour the wealthy at the expense of people with limited-incomes.

For Hassanein, the first confrontation with deputies began when the state's financial results for 1998/1999 were discussed by the People's Assembly. According to parliament's Planning and Budgeting committee, the net budget deficit for 1998/1999 reached LE10.2 billion as compared to LE4.6 billion the previous year, representing an increase of 150 per cent. Hassanein, said that the deficit had increased due to the state's growing obligations in subsidising goods and services.

Many MPs questioned Hassanein's justification. Abul-Ezz El-Hariri, a member of the leftist Tagammu Party, charged that the government's fiscal imprudence and reluctance to fight tax evasion are primarily to blame for the growing budget deficit.

The debate escalated when the budget for 2001/2002 was submitted for discussion. The budget's public expenditure is estimated at LE127 billion, while the available financial resources are estimated at LE106 billion. This means that the budget deficit in the coming year is expected to reach almost LE21 billion -- 6.7 per cent of the gross domestic product (GDP). To bridge this gap in financial resources, Hassanein unveiled two controversial measures: the application of the second and third stages of the 1991 sales tax, and the issuing of sovereign Eurobonds worth $2 billion.

Discussion of the first measure, in a morning session, met with sweeping objections from NDP, opposition and independent MPs alike. Businessman Ahmed Ezz, chairman of the Planning and Budgeting Committee, was the only deputy who came out in defence of the new tax. Both Hassan and Ezz agreed that it is necessary to cover more of the financial resources required to provide social services, raise salaries and improve the performance of economic authorities. Hassanein warned that unless the new sales tax is levied in the next fiscal year, the government will not be able to afford the annual 10 per cent increase in employees salaries.

MPs, totally unimpressed by Hassanein's argument, predicted that implementing the new sales tax regime will lead to a social disaster. "It will increase the financial burdens on people in limited and average-income brackets. Added to which it will have a negative impact on the standard of living in general at a time when the market is in a severe recession," said independent MP Abdel-Moneim El-Oleimi.

Leftist MP El-Hariri was even more outspoken in his criticism of Hassanein. El-Hariri described Hassanein's policies as "primarily directed at protecting the interests of rich businessmen." He continued, "You are one of those businessmen and your policies are aimed at protecting them by refusing to take forceful action against tax-evasion." Private business is estimated to be in arrears to the state some LE11 billion in taxes. "The easiest solution [for the government] is to levy new taxes, the brunt of which will ultimately be borne by poorer citizens," charged El-Hariri.

Having scheduled the vote on the sales tax for an evening session (these are typically less well attended than morning sessions), parliament speaker Fathi Sorour rejected a request by MPs opposing the measure to make some final remarks before the voting. Fifty-four opposition and independent MPs walked out. And In spite of all the objections voiced by NDP MPs, when the tax was voted on they came out overwhelmingly in favour of the measure.

Hassanein is expected to be faced with a new round of criticism next week when two additional draft laws are scheduled to be debated. These concern issuing sovereign Eurobonds and levying a 5 per cent tax on the sale of new cars, whether they are assembled in Egypt or imported.

Minister Ghali also received his share of parliamentary criticism in recent weeks. This reached a crescendo when Kamal Ahmed, an independent MP with Nasserist tendencies, directed an interpellation -- a question that must be answered -- at Ghali. Backed up by a well-documented 45-page report that he had prepared, Ahmed charged that since 1997 the management of the Cairo Stock Exchange has been rife with staggering financial irregularities and blatant cronyism.

Ahmed went on to criticize Ghali for failing to suggest additional legal measures to put an end to such practices.

Referring to his report, Ahmed alleged that former Cabinet Affairs Minister Talaat Hammad had conspired with Sameh El-Torgoman, chairman of Cairo's Stock Exchange, to use money from national pension funds on the stock market.

Ahmed said that El-Torgoman and Hammad pressured the Social Insurance Ministry to purchase shares in the mobile telephone service provider MobiNil at a price of LE2.60 per share. When the share rose to LE9, the pension funds were forced to sell their shares back to MobiNil's Naguib Sawiris personally at their original price of LE2.60. Added to this Ahmed suggested that MobiNil shares were allowed to increase by more than 5 per cent in a single day -- a violation of the bourse's rules whereby fluctuations in share value may not exceed this figure, thus allowing MobiNil's share to reach a high of LE190. Ahmed said, "This, thanks to the intervention of Hammad and El-Torgoman, was achieved against hefty commissions."

Ahmed argued that since Ghali's policies are aimed at serving the interests of businessmen, he will not take any action against these practices for "which Egypt's poor usually pay dearly." In response, Ghali conceded that some of the information in Ahmed's interpellation was "to some extent correct." He continued saying, "However, we took all necessary actions to make all bourse transactions transparent. This is why I decided to entrust the CAA with overhauling the bourse's accounts," said Ghali.

The NDP-dominated assembly, however, rejected Ahmed's requests to either form a fact-finding committee to examine the allegedly irregular practices in the bourse or refer the instances of cronyism outlined in the interpellation report to the prosecutor-general for investigation.

Ghali had come under parliament's fire a week earlier when the draft mortgage law was submitted for discussion. The finance minister described the law as a step towards solving the housing problem by enabling people in limited-income brackets to assume ownership of flats having only made down payments. He added that the law should also invigorate the market for the products and services offered by 52 industries related to the housing sector. Ghali's argument, however, did not satisfy all MPs.

Criticism of the draft law was led by NDP MP and chief of the presidential cabinet Zakaria Azmi. "This law is presented in the name of the poor but in fact it is aimed at serving the interests of the rich," he said.

Joining forces with Azmi, majority leader Mohamed Mahmoud Hassan asserted that the law would only serve people whose income exceeds LE1,000 per month. "So, the minister's argument that this law will serve limited-income brackets is highly exaggerated," Hassan said.

Other critics of the draft law from among opposition and independent MPs argued that it is primarily aimed at serving business tycoons who invested huge bank loans in real estate investments. "This law is tailored to help these businessmen pay back their bank debts by encouraging a certain class to buy the flats they had built," said NDP's deputy Farouk El-Mikrahi.

Due to this stinging criticism, Prime Minister Atef Ebeid was summoned to address the assembly. "Let me emphasise that this law is aimed at serving people in limited-income brackets. I beg you to approve it in principle and I vow that the government will approve all the modifications you suggest which you think favour the poor," Ebeid said.

The 56-article law will be discussed in detail during next week's sessions of parliament.

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