BEIRUT (Reuters) - Lebanon’s president signed off on public sector pay rises and tax hikes on Monday, a move that has triggered business concerns but could help politicians shore up support ahead of a legislative election next year.
President Michel Aoun held off ratifying the two laws since parliament approved them last month, amid objections from businesses about the impact of more taxes on Lebanon’s fragile economy.
Finance Minister Ali Hassan Khalil, a proponent of the legislation, told Reuters it would “reflect positively on social stability”.
The salary scale would cost an estimated 1.38 trillion Lebanese pounds ($917 million), while the tax hikes would bring in revenue of 1.65 trillion pounds ($1.1 billion), he said.
But Nassib Ghobril, chief economist at Byblos Bank, said it was difficult to gauge the cost, particularly since “we don’t know how many employees there are in the public sector”.
“Nobody knows,” he said. “It’s difficult to put a real, credible figure on the cost of the public sector salary scale.”
Ghobril said the public sector needed “fundamental and in-depth reforms” before salary increases.
His comments reflect wider concern among some economists that a tax increase will slow growth without offsetting the dent in public finances caused by the salary rise.
The tax law raises value-added tax (VAT) by 1 percentage point to 11 percent and hikes corporation tax to 17 percent from 15 percent. Some taxes on property, imported tobacco and alcohol were also set to increase.
While higher pay will prove popular among state workers, the proposed tax hikes sparked protests in Beirut this year. Some public sector workers also demonstrated, calling on Aoun to sign the laws.
Economists have said Lebanon should focus more on fighting tax evasion rather than raising taxes to finance public sector wage increases.
The public sector pay scale law has been under discussion for years. Ghobril said politicians probably passed the laws now “because we’re coming close to parliamentary elections”.
Lebanon is expected to hold long-delayed elections in May 2018, after the cabinet approved a new vote law that prevented a political crisis. Lawmakers have extended their own mandate twice since being elected in 2009 for what was meant to be a four-year term.
The new legislation will take effect once it is published in the government’s official gazette. Aoun had chaired a meeting of public and private sector figures last week to discuss the points of contention in both laws.
The International Monetary Fund (IMF) has repeatedly called for Lebanon to raise taxes - including corporation, property, VAT and fuel taxes - a way of tackling the growing public debt.
In recent years, the pillars of the Lebanese economy - remittances, tourism and real estate - have been battered by the Syrian war, neglected by wrangling politicians, and caught in rivalry between Saudi Arabia and Iran.
Aoun’s election last year ended a 29-month presidential vacuum in a country that had been crippled by political gridlock.
Sunni leader Saad al-Hariri became premier in a power-sharing deal that saw Aoun, a staunch Hezbollah ally, elected president. Saudi-allied Hariri then formed a unity cabinet that includes nearly all of Lebanon’s main parties.
Reporting by Ellen Francis and Tom Perry; Editing by Richard Balmforth and Alison Williams