Higher public salary scale sparks inflation concerns

Passing a draft law that introduces higher salary levels for different categories of public sector employees would push inflation levels above 10 percent, increase tuition fees by 30 percent and add $2 billion to the budget deficit, the Economic Committees warned Tuesday. Reiterating their rejection of the new salary scale for government employees and the taxes suggested to finance it, the private sector stressed that the economy would be devastated should Parliament endorse the draft law before amendments are made. “This rejection is based on the country’s economic interests and the interest of the Lebanese, particularly [public employees] who would receive a raise only to [see it eroded] by inflation,” said Adnan Kassar, head of the Committees, as he handed impact studies to the finance and economy ministers. While public sector employees will receive another wage increase by the end of this month that has been due since February, the boosted salary scale involves a separate wage hike which dates back to 1996 but has never been enforced until Prime Minister Najib Mikati approved it two weeks ago. Mikati, however, insisted that the salary increase would implemented in increments over the next three years, a proposal vehemently rejected by public school teachers. Category one employees will receive LL2.9 million; category two employees will get LL1.7 million; around LL940,000 will be given to category three employees; and LL210,000 will be given to the state’s lowest-ranking clerks. Public high school teachers, the main advocates behind the new scale, will receive around LL1 million in raises, while public elementary school teachers will receive LL789,000. The salary hikes stipulated in the new scale will be paid in installments of one-thirds, according to the draft law. The first one-third became effective from August 2012, the second at the beginning of 2013 and the last at the beginning of 2014. Kassar warned that if the government proceeds with the wage increase plans, Lebanon could fall into an unprecedented economic crisis mirroring those wreaking havoc in Greece, Italy and Spain, which are “all far superior economies.” He said the Economic Committees would not stand idle against what he described as structural attempts to destroy the Lebanese economy. “Starting from today, we will make sure that our calls reach all Lebanese and we will make sure everyone is aware about the disastrous impact this project has on the prospects of the economy.” According to studies presented by the Economic Committees to the Cabinet, Treasury deficit would soar from $4 billion to as much as $6.5 billion in 2012, if the new scale was passed. “There is no doubt that this would push the economy to the brink of collapse, particularly that [global financial crisis] makes resorting to international community conferences like Paris I, II and III an unavailable option,” one study reads. A second study examining the impact of taxes on the economy states that taxes needed to finance the wage increases would amount to 10 percent of Lebanon’s gross domestic product. “No similar thing was ever attempted by any state. This would shock the Lebanese economy’s ability to grow,” the study reads. “The total profits of Lebanese banks do not exceed $1.5 billion, only a third of the electricity sector deficit. Why keep taxing the banking sector, the cornerstone of the Lebanese economy?” the report asks. Meanwhile, MP Nabil Du Freij, head of the Economy and Planning Parliamentary Committee, said any decision on this issue should be carefully studied before proceeding with the draft law. “We have to take into consideration not just the need for public sector employees but the ability of the economy, the private sector and the government,” Du Freij told reporters following a meeting of the parliamentary committee. He said the new salary scale should be passed in a way that would not spur inflation. “Preserving financial stability and purchasing power is a must.” Du Freij said the committee passed on a draft law that would slash taxes on industrial exports by 50 percent. The draft law would still need to be endorsed by Parliament before becoming effective. In a statement last weekend, Finance Minister Mohammad Safadi said his ministry was committed to settling all financial dues to cover for a public sector wage increase that became effective in February. Commenting on the revised salary scale, the finance minister reiterated that securing financial resources for this plan is a precondition. Teachers and state employees unions threatened last week to stage a strike if the government fails to implement the long-awaited revision. State employees and public school teachers said they may consider a nationwide strike in 10 days if the government has not come up with clear answers about the hikes. But some economists believe that the Cabinet will keep postponing discussions on the salary scale until the parliamentary elections take place in June 2013. From DailyStar