Blame for missing the submission deadline for the 2010 budget is still being tossed around between the finance ministry and the opposition. To avoid a similar situation next year, Finance Minister Rayya Hassan last month made good on a promise to put forward the 2011 budget for cabinet’s submission to Parliament in October ahead of the constitutional deadline, something she considers “a major achievement.”
The 2011 budget grew out of many of the assumptions and data used for the 2010 submission. It also includes targets for countrywide development plans and total deficit reduction, with the overriding objectives being development of core infrastructure to boost economic growth; increased access to, and quality of, social services, education and healthcare; identifying and honoring all payments in arrears; increased tax efficiency; strengthened security; and, in the absence of actual debt reduction, controlling the debt-to-GDP growth rate and reducing the deficit.
In a first for Lebanon’s post war annual budgets, debt servicing will fall from 23.4 percent of the total budget in 2011 to 20.6 percent in 2013. Figures released by the ministry predict that debt servicing in 2011 will be $3.851 billion, down from $4.067 billion in 2010.
The total 2011 budget size is $13.182 billion, up from $13.025 billion in 2010. Government revenue is expected to rise from $8.587 billion in 2010 to $9.574 billion in 2011. Correspondingly, the deficit will shrink from $4.439 billion in 2010 to $3.608 billion in 2011 (a reduction of 19 percent), if the underlying budgetary assumptions hold.
The 2011 budget also carries provisions for building a new 700 megawatt gas-powered electricity generation plant. Notably, there will be no increase in the value-added tax even though Hassan had previously hinted that she would impose one in the 2011 budget. As an alternative, a more efficient tax collection regime is being developed to capture lost revenue. Moreover, the ministry will enact a 1 percent increase in capital gains tax while imposing a 5 percent one-time tax on fixed-asset and real estate revaluations conducted by companies. Furthermore, penalties on taxes and fees will be reduced by 90 percent to encourage the payment of taxes in arrears.
The budget was submitted to the cabinet on September 23 where it was debated and its discussion postponed until the next cabinet session. The following day, Charbel Nahas, minister of telecommunications and an economist in the opposition, held a press conference where he criticized the government’s financial strategy in the period after the onset of the global financial crisis, citing an increasing primary surplus due to growing revenues from taxes and capital inflows but no tangible difference in the management of public finances.
“When the government debates the budget it cannot act like this is not happening,” said Nahas, adding that a planned increase in capital gains tax should be foregone in favor of a tax on real estate profits to bring in $99.5 million dollars per year, as well as an increase in the tax on deposits in banks, something that the finance minister also proposed in the 2010 budget.