Here's your budget

If this new budget is passed, the economy is guaranteed to contract and unemployment in the private sector to increase, leading to a reduction in government revenue.
by Dan Azzi

15 May 2019 | 16:21

Source: by Annahar

  • by Dan Azzi
  • Source: Annahar
  • Last update: 15 May 2019 | 16:21

Anti-corruption protesters inspired by the French movement “Yellow Vests” hold masks painted with the Lebanese flag demonstrate in Martyr’s square, in central Beirut, on December 23, 2018. (AFP Photo)

A budget is currently being proposed, with austerity measures focused on reducing the salaries of public sector workers by maybe 15%. Let’s assume that, by some miracle, they are actually successful and able to power through all the strikes. Clearly, employee spending power drops, so they buy less stuff, which would cause a drop in revenue of more businesses, like restaurants and malls.

Across the board tax increases would further reduce disposable incomes, putting a further strain on the economy. In other words, if this new budget is passed, the economy is guaranteed to contract and unemployment in the private sector to increase, leading to a reduction in government revenue.

On the positive side, less demand leads to less imports, which reduces the fatal trajectory of the balance of payments (BOP) deficit, i.e. dollars flowing out of the country.

Let me be clear. This is the most dangerous ailment in the country. Not the bloated government sector, not corruption, and not waste. Those three are major problems, but the BOP is the most deadly cancer.

So, if the BOP is the main problem, here’s a sample plan, which does not duplicate cookie-cutter ideas from other countries. What I’ve tried to do is to come up with drastic, somewhat original measures, that fit our particular situation. Let’s call it the McAzzi Report, but I won’t charge a million dollars for it.

Today, Lebanese tourists on vacation outside spend almost the same as tourists coming in, thereby negating any benefit. Thus, I would implement a gargantuan airport departure tax, say $500 per flight, on any touristic trip by a local resident. This would curtail a public sector employee from taking his Lira salary, after the silisli pay raise, converting it to dollars and spending it in Turkey or Greece.

Expats or foreign tourists would be exempt, to encourage them to come and spend hard currency here. Business trips by residents would be exempt, presumably because their purpose is to bring in revenue (hard currency) into the country.

Although enforcement is a challenge, the fines for fraudulently misrepresenting a trip would be steep, say 20 times the departure tax, like $10,000. Even if you catch one out of ten people, this would more than compensate for anyone slipping through the cracks.

This alone would raise something like $1 billion for the treasury, and reduce the balance of payments probably by another billion dollars. It would also encourage local tourism, which now starts to look like a good deal for an employee of the railway company, and introduce an immediate vice tax on things that generate further negative costs down the road (like medical).

So 100-500% tax on tobacco, cigarettes, arghile, alcohol, and very reluctantly I’ll say this, cigars. This raises money, reduces imports, and saves lives, reducing lung cancer, drunk driving accidents, hospital bills, lost productivity through sick days.

While this also reduces some consumption and economic activity, it would be in specific areas where this is desirable. Rather than outright banning indoor smoking like they tried to do a few years ago, you tax it heavily instead. You introduce a large tax, say 50%, on any luxury or nonessential product, like an Armani shirt, Chanel purse, foreign jeans, and Italian marble.

The tax should also rise quickly for more expensive products. So IKEA furniture might be taxed at 25%, but more expensive brands at 50% or 100%. Put a steep tax on any car with a V6 or V8 engine. For example, add a 200% tariff on Range Rovers, Cadillac Escalades, Mercedes S500, BMW 760 etc., making the price around $300,000 or more, thereby incentivizing most people to buy small 4 cylinder cars, and reducing our hydrocarbon emissions (pollution), as well as reducing gasoline imports (again attacking the BOP problem).

This would also have the added benefit of reforming our techbi7 culture. Abolish tax on renters. Instead, introduce a progressive tax on owners of real estate, which rises steeply for people with large houses. Even on land.

Again, this incentivizes people to move to smaller houses instead of the monstrosities they live in now, and invariably leave most of it unheated to save on electric bills.

Speaking of electric bills, anyone with solar panels producing most of their heating needs and reducing energy requirements would get a significant reduction in this real estate tax.

Enforcement and collection would be easier, because while a renter could move to another municipality or sign “under the table” rental agreements, a house can’t run away. Plus it would be fairer to tax the owner than the renter, who presumably can’t afford to buy. Abolish all monopolies.

None of this “wakil 7asri” social welfare for the rich. This would increase competition and reduce prices, somewhat compensating for the higher taxes. Introduce a large tax on domestic workers, who send $3-4 billion dollars overseas, again increasing our BOP deficit.

The tax could be something like $2000 per year, but in return, streamline the process, so that a work permit would be given for 5 years, without the annual hassle. This could also have the added benefit of employing some Lebanese at the bottom of the pyramid. Cut the number of ministers from 30 to no more than 15, maybe even 10, and abolish these silly ‘minister without a portfolio’ positions. Cut the number of deputies from 128 to 64, or less. There’s no need for that many ministers and deputies in one of the tiniest countries in the world.

On the spending side, we would issue ‘revenue bonds’ (bonds designed for a specific project) to build a public transportation system, such as a monorail that travels above the highway and a ferry service from Trablos to Sour, since we have 160 kilometers of coast.

We would reserve the “Tari2 Ba7rieh” for school buses and public transportation buses. We would introduce a toll of say $10 on every car coming into Beirut with only one passenger, to encourage carpooling; $5 for cars carrying two passengers, and $1 for cars carrying 4 people.

This would have the added bonus of reducing traffic and pollution. Back to the austerity measures. Instead of reducing public sector salaries by 15%, how about we lay off 15% of them instead? Politically, it’s easier to pass, because would you rather piss off 100 people or 15? Start with the easy ones, like the infamous railroad employees, or the Flag organization, or the ones who don’t show up to work.

Then introduce a performance evaluation system (PES) that has certain measurable metrics and fire the bottom 5% every year for the next 3-5 years. Part of the PES would be based on quantitative measures like how many days it took a department to issue a passport or how long it took to fix an internet connection outage.

The PES would also incorporate customer feedback (from the Lebanese taxpayer). In addition to reducing costs, this would increase their efficiency and reduce bribes and corruption (because anyone caught taking a bribe would be fired on the spot). I can’t fit any more ideas in the 1,200 word limit from my editor, otherwise, he’ll cut my salary by 15%, so I’ll stop here.    

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Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon.   

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