21 - 27 June 2001
Issue No.539
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Al-Ahram Weekly Online 21 - 27 June 2001 Issue No.539 |
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Increasing income -- not expenditures
Consumers, retailers and wholesalers are all asking why the government is intent on imposing new taxes amidst a recession. Sherine Nasr listens to the minister of finance's answers to the question on everyone's lips
During a panel discussion at the Centre for Economic and Financial Research and Studies, attendees implored Minister of Finance Medhat Hassanein to explain why the government is intent on implementing the second and third phases of the sales tax amidst a market recession. But rather than addressing this question directly, Hassanien shifted the focus of the discussion to the budget deficit.
The second and third phases of the sales tax, explained Hassanein, are only one part of an extensive reform policy which the government is adopting to improve Egypt's financial situation.
"This reform policy consists of 11 integrated programmes that have been designed to solve that age-old predicament of dealing with expenditure rates that are increasing faster than the rate of growth of available financial resources," said Hassanein.
The total expenditure in the state budget ratified by the People's Assembly for 2001-2002 is LE126.8 billion -- a plan that carries a LE20 billion budget deficit.
According to Hassanein, a more worrisome fiscal challenge is the public local debt which is currently approximately LE16 billion -- a figure that is projected to increase by 10-11 per cent annually.
But as Hassanein pointed out, such debts were incurred for crucial projects. "These figures represent the cost of building roads, ports, hospitals and schools, which all have a great social as well as economic impact -- but do not have direct financial returns," he said. Because there are no extra resources generated to finance these projects and services, they are being financed through debts, which are accumulating progressively.
On the other side of the equation, the state's sources of income include taxes, customs and royalties, which are expected to bring in LE70 billion; revenue from petroleum, the Suez Canal, the Central Bank and holding companies together are expected to amount to LE25 billion along with other sources amounting to LE11 billion. "Total income is estimated at LE106 billion," said Hassanein.
Hassanein rejected privatisation of utilities as a solution to upgrade them so as to decrease their burden on the state budget. Privatisation of water, electricity and transport are too controversial among citizens, many of whom live on limited incomes, said Hassanein. The alternative, he suggested, is to improve the management of utility authorities.
Other approaches to reform include changing from input-oriented budgets to results-oriented budgets. "In other words, only projects aimed at specific targets would be invested in. The Ministries of Electricity and Health are now involved in a number of pilot projects of this type," Hassanein said.
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