Lebanese MPs Facing the 2019 Budget Challenge
Lebanese Parliament, Beirut, Lebanon | October 8, 2018
The Lebanese Institute for Market Studies – LIMS, held a workshop entitled “Lebanese MPs Facing the 2019 Budget Challenge” under the patronage of the speaker Nabih Berri, represented by Minister of State for Administrative Reforms in caretaker government Dr. Inaya Ezzeddine, with a group of MPs: Antoine Pano, Kassem Hashem, Henry Helo, Nawaf Al-Mousawi, Adnan Traboulsi, Chamel Roukoz, Ali Darwish, Fadi Alameh, Imad Wakim, Eddy Abi Lamaa, Sami Fatfat, and numerous consultants, experts, and public managers.
Dr. Daniel Mitchell, one of the world’s leading experts in tax affairs, spending caps, and spending restraints, stated that Lebanon holds a low ranking in world economic indicators, especially regarding severe restrictions on trade, regulatory policy, and quality of justice. He also pointed out the importance of reducing the public debt that is currently 150% of the gross domestic product (GDP) through controlled spending, rather than increasing taxes, stressing that the private sector generate jobs. Raising taxes will create a shadow economy, and the taxes reduce the international competitiveness of the Lebanese economy. Further, higher taxation will hurt economic growth, which in turn would decrease state revenue instead of increasing it. To allow the private sector to grow at a much faster rate than the public sector, Dr. Mitchell advised Lebanon to adopt a spending cap.
President of LIMS Dr. Patrick Mardini focused on the state bankruptcy, and talked about financial markets and the high interest on treasury bonds. He also called for cost-cutting and improving infrastructures at the same time, by allowing private companies to fund highways, water, and electricity projects at their own expense, instead of depending on the state budget. Consequently, private companies that would handle roadwork, water purification, and building electricity generation stations, would compete to secure better-quality services for consumers. Dr. Mardini endorsed the idea of using CEDRE loans to swap the current debt that has high interest to lower ones, which would lead to reducing the public debt service and improve public finances, without sacrificing infrastructure projects.
Dr. Inaya Ezzeddine stated that the budget was supposed to be an ordinary task on the agenda, but such became an exceptional maturity due to an unprepared process for 11 years respectively. The current government and the Ministry of Finance prepared a plan for the budget last year, the completion of the state’s financial accounts, and the introduction of bold fiscal measures. For that, she considered that the basic function of the parliament is to control fiscal spending, warned of the absence of the economic vision, and drew attention to a review in the existing economic structure, which is essential and should be based on the transition to the productivity, innovation, and modernization of the administration. Dr. Ezzeddine focused on digital transformation, anti-corruption, adopting a more just tax system, and organizing relations between the public and the private sector, by helping to develop infrastructure, and public services.
Economist Dr. Tom Palmer talked about the economic and financial situation in Lebanon, and noted that Greece’s economic crisis developed due to the government’s random expenditure. In the case of Lebanon, Dr. Palmer emphasized on promptly solving the problem, especially in the presence of the political situation and neighboring states, to avoid crisis.
A detailed discussion took place between the MPs, Dr. Mitchell, and Dr. Patrick on the following topics: the budget, the deficit, and spending. The workshop ended with a number of recommendations as follows:
• The reduction of the public debt of 150% of GDP should be accelerated, to control interest rates in the Lebanese state and decrease the risk of bankruptcy.
• Stop raising taxes in order to stop the deterioration of Lebanon’s global competitiveness and avoid turning institutions into a shadow economy, by means of tax evasion and businesses closing due to high taxes.
• Increasing state revenues by allowing the private sector to grow faster than the public sector.
• Adopting a spending cap policy, as Switzerland, Hong Kong and others have, and determining the rate of growth in expenditure, rather than increasing it randomly.
• Allowing private companies to finance infrastructure projects at their own expense, rather than relying on the state budget.
• Introducing competition between private companies, in providing infrastructure services to preserve people’s basic rights.
• The use of CEDRE funds to swap current high-interest loans with low interest rates, leading to a reduction in public debt service.
• Activating the oversight of the parliament on financial spending in all ministries, public institutions, bodies, and funds.