Safadi presents another unlikely state budget

Finance Minister Mohammad Safadi presented a 2013 draft budget to Prime Minister Najib Mikati amid strong indications that the bill, like previous budgets, will fail to win the approval of Cabinet and Parliament. According to the Finance Ministry, the new draft budget projects spending at $15.26 billion, while the deficit will stand at $3.11 billion. Though the bill is unlikely to be passed, a source at the Finance Ministry said Safadi was still keen on meeting the deadline for a budget to be submitted. Since 2005, successive Lebanese governments have failed to force a draft budget through Parliament due to sharp political differences between the country’s two main political coalitions, the March 14 and March 8 blocs. Safadi has said a new public sector salary scale, which will be discussed by the Cabinet this week, will cost the treasury at least $1 billion a year if it is approved. The minister has proposed covering the $1 billion in added costs through three installments. However, some media reports say that Mikati favors imposing new taxes to offset the costs – a move opposed by many ministers in the Cabinet. Most ministers strongly opposed Safadi’s 2012 draft budget because the bill called for higher taxes. They fear that new taxes would likely trigger widespread protests from both labor unions and the private sector. Safadi has insisted on a number of occasions that the government cannot keep spending money without raising taxes, warning that if the Cabinet allocates funds for the salary hike and infrastructure projects, the deficit will become difficult to manage. The International Monetary Fund, the World Bank and international rating agencies have cautioned the Cabinet against overspending and urged Mikati to consider higher VAT and taxes on real estate transactions. The government recently agreed to pay all public employees the difference of the salary increase retroactively from February 2012. The budget deficit started to rise as of June of this year, according to the Finance Ministry. It added that the budget deficit in the first six months of 2012 rose by LL403 billion to reach LL1.708 trillion (up by 18.26 percent), compared to LL1.304 trillion (up by 15.36 percent) in the same period of last year. It added that the primary surplus, excluding the cost of debt servicing, fell by LL542 billion to reach LL1.164 trillion – 12.45 percent of total spending. This was the first time in two years that the Finance Ministry announced an increase in the budget deficit. Total spending up to June 2012 reached LL7.642 trillion compared to LL7.332 trillion in the same period of 2011 – an increase of LL456 billion. Most economists favor taxes on real estate transactions and profit on capital gains to help the government meet its immediate spending needs. Lebanon’s public debt, which now stands at less than $55 billion, may exceed $60 billion next year if spending continues to rise unchecked. But experts say Lebanon will have no trouble financing public debt by issuing Eurobonds, which will be snapped up by commercial banks. From DailyStar