Fayyad: Govt raises tax, cutting costs to plug deficit

Palestinian Authority Prime Minister Salam Fayyad is cutting spending and raising taxes in an attempt to plug the $1.1 billion deficit in the public budget, he told reporters in Ramallah on Sunday evening. Fayyad's government aims to knock $350 million off the budget deficit through new measures to cut costs and increase revenues, including an income tax increase now in effect, the premier said. The global financial crisis and a failure of donor countries to honor their aid pledges has caused a sharp increase in the budget shortfall in 2011. At the start of 2011, the Ramallah-based government had a deficit of $350 million, and now it stands at three times that figure, Fayyad, a former World Bank economist, told journalists. "We designed this year’s budget expecting $1 billion of aid for running costs, but we received only $720 million," he said. "The treasury had to fund developmental projects worth $250 million from its general revenue, because of insufficient funds from donor countries," he added. New income tax measures have been introduced to ease the shortfall, which raise the personal tax rate to a minimum of 5 percent, and maximum of 30 percent. More entities will be subject to taxation, and tax rates on land and property trading will also be raised, he said. The government is also studying spending cuts for the 2012 budget, which is to be approved by March and is planned to total $3.5 billion, according to Fayyad. Civil servants and economists have criticized the new financial measures, but Fayyad said they are necessary for the Palestinian Authority to avoid another financial crisis in 2012. The government owes $1.4 billion in unpaid revenues to private sector contractors, including construction companies and medical suppliers, Fayyad said. But it has kept up payments of approximately $120 million per month to the Gaza Strip, despite revenue collected from the enclave falling from 28 percent of total revenues in 2005, to 2 percent in 2011, the premier noted.