Economist Mahmoud Al-Khafif addresses the 2013-2014 budget and the current economic policies of the government.
Balancing between the rich and the poor
Egypt’s national budget is an indicator of governmental policies, economist Mahmoud Al-Khafif believes.
For example, Al-Khafif writes, if the government chooses to pursue loans to remedy the budget for the 2013-2014 fiscal year, then it is choosing short term gains over benefiting of future generations. If the government’s spending is more focused on higher socio-economic classes, then it is an indication of it favouring the rich over the poor.
Al-Khafif details Egypt’s general budget for the next fiscal year, 2013-2014. He notes that policies have not changed significantly since before the revolution, adding that the current policy is “built on the philosophy of reconciling with Washington DC (International Monetary Fund (IMF), World Bank and the American Treasury), the same policy used during the past four decades.”
This policy, the economist believes, led to a widening gap between the rich and the poor. He explains that the trend in the 2013-2014 national budget is to try to close the gap by decreasing expenses while not increasing taxes on the rich, and applying the IMF’s austerity measures.
The main policy change in this budget is the increase in sales tax, which is expected to be raised to 50%. “This kind of tax is ‘unfair’ and contradicts the principal of social justice, since it mostly burdens the poor… since most of the poor’s income (80-90%) is spent on daily expenses… versus only 10-20% of the rich’s income.”
Al-Khafif explains that the budget does not apply incremental taxes to achieve social justice, adding that high-salaried officials also benefit from the policy since the maximum wage concept has not been applied.
At the same time, no new taxes were applied on the stock market’s transactions or profits. In addition, the government did not seek to increase its income from the oil and gas sector even though “the government’s current surplus is only 10% of the sector’s pure profit.” He adds that the proposed sukuk law might indicate that the privatisation of public assets is still underway but in a different method.
The writer explains that 85% of the funds needed for national budgetary expenses will be supplied from decreased fuel subsidy spending. The budget did not, however, indicate how the government will supply the EGP 180bn needed to pay loan interest owed to foreign governments and lenders.
To Al-Khafif, the solution is not decreased spending, but making it more efficient for the poor and for increasing future investments. He adds that the current policy will not aid Egypt or free it from its state of financial dependency, which has existed since the 70s. He explains that Egypt should target increasing the poor’s income, a policy he believes is crucial, considering the current situation.