Egypt's new budget, the first under an elected civilian president, should have two main characteristics. The first is that it should include reforms conditional on obtaining an IMF loan, such as fuel subsidy rationalisation and tax increases, changes that will affect Egyptians' spending levels. The second is that it will need to be passed by the Islamist-led Shura Council, the upper house of parliament which holds temporary legislative powers as the People's Assembly was disbanded by court ruling last year. Some activists argue that it would be unconstitutional for the Shura Council to discuss the budget, as this is traditionally the job of the People's Assembly. Concerns over these two characteristics led representatives of the country's opposition parties, NGOs and trade unions to file a court case earlier this week intended to force the government to make the details of the budget available and subject to public debate. “The government gives gross figures for its planned expenditures and revenues, but we need to understand how much it will take from our pockets in taxes and increased prices. We want to know what it is receiving in loans now and what our children will be repaying in coming years.” Rania Mohamed, a 40-year-old accountant, told Al-Ahram Weekly. Economists and investment bankers interviewed by the Weekly echoed Mohamed's reservations. “We know the figures, but the policies that will make these projections applicable have not been revealed,” Mona Mansour, head of research at CI Capital, a leading investment bank, said. According to the plan revealed by Minister of Finance Al-Morsi Hegazi in front of the Shura Council last week, the government is targeting LE497 billion in revenues through the year ending June 2014. Meanwhile, it is putting expected expenditure at LE692 billion, leaving a deficit of LE197.5 billion, or 9.5 per cent of gross domestic product. The current year's deficit is expected to hover around 12 per cent, almost 30 per cent more than the projections. The budget figures are based on ungrounded and optimistic assumptions, Mansour said, explaining that the government's rosy projections for revenues and expenditures exceeded experts' expectations. “Look at the tax figures. These are LE90 billion higher than last year's, and this will be very hard to achieve in the light of the current economic slowdown,” she said. Taxes represent almost 70 per cent of the new budget's planned revenues, coming in at LE356 billion. Khaled Amin, a Public finance expert, said that the hike in tax projections stemmed from the fact that the actual revenues for the first nine months of the current fiscal year had exceeded the projected figures by 20 per cent. As a result, the “government has based its assumptions on those better-than-expected revenues.” The increase in collected taxes, according to Amin, was due to a number of settlements with large taxpayers, changes in the collection system, and Muslim Brotherhood business tycoons paying their tax dues in full. Samer Attallah, assistant professor of economics at the American University in Cairo, said the government would be depending on easy-to-collect taxes like property taxes. The property tax has been shelved several times out of fears that it will add to Egyptians' tax burdens, but the government is planning to impose it anyway in July. The government said it had prepared a database of taxable properties, which successive governments had been working on. “They will start with soft targets like business parks, shopping malls, resorts and high-end housing compounds,” Amin said. He pointed out that taxes on these units were high in value and easy to collect, and he put expected revenues at LE2 billion. The government has recently introduced increases on sales taxes on six commodities, including cigarettes and non-alcoholic beverages. Yields are expected to come in at around LE6 billion. Economists agree that the high tax figures leave space for leaked reports of a government plan to increase sales taxes across the board being true. Sources close to the Ministry of Finance told the Weekly that the government was planning to replace the sales tax by a Value Added Tax (VAT) in the second half of the current fiscal year. In order to do so, the tax rate on different commodities will have to be unified in order to facilitate the new tax's smooth inception. The source said that the unified rate was planned at 12 to 12.5 per cent, meaning an increase of up to 25 per cent in some commodities. According to the budget, revenues from mining come in at LE7.7 billion, 40 times the revenues in the previous year. While commenting that the figure was a bit exaggerated, Amin said that the increase was due to an amendment in the mining law that raised royalties paid to the government. “The royalties were calculated in piastres before the amendment, but now they are collected in thousands of pounds,” he added. On the expenditure side of the budget, the figures are not less controversial. Interest payments on government debt come in at LE182 billion, marking a 31 per cent increase on the previous year. “This means the government will depend heavily on borrowing and will maintain the current policy of depending on treasury bonds and bills,” Attallah said. The political instability in the country and uncertainty over government policy have weighed on Egypt's credit-worthiness and been reflected in the high yield paid on bills and bonds, ranging between 14 and 16 per cent. Amin saw the figures from a different angle. “No one can overlook the effect of the increase in the dollar exchange rate on the interest rate bill, as foreign debt servicing is paid in dollars and seven times its dollar value appears in the budget in Egyptian pounds.” The local currency has lost almost 15 per cent of its value since the beginning of this fiscal year, now trading at around LE7 to the dollar. The subsidies bill comes in at a staggering LE205 billion in the new budget, with fuel subsidies mounting to LE99.6 billion, little changed from last year's figure. Mansour said she believed this meant the government knew it was not ready to implement fuel subsidy rationalisation using smart cards that had been planned to start in July. She expected the actual fuel subsidy bill to be some LE125 billion. Amin pointed to the effect of the increase in the dollar on the subsidies bill, as Egypt imports the bulk of its energy needs. “Any reduction in the subsidy bill has been eaten up by the increase in the dollar price,” he said. The new budget keeps export-support subsidies at their current level of LE3 billion. “This is exaggerated, favouring the rich at the expense of the less fortunate,” said Attallah, explaining that the value added by these exporters to the economy is limited and yet they are given billions of pounds in support. Meanwhile, the poor governorates of Upper Egypt have been allocated only LE600 million in the budget. And while 30 per cent of the workforce comes from the agricultural sector, according to Attallah, increases in farm subsidies this year are less than those given to exporters. “It is a deficit budget, which means it has to focus on investment and creating jobs to boost growth and tighten the deficit,” he said. “But according to the released figures it is a wasted deficit budget that does not realise any social gains.” What all the experts agreed on were the unrealistic growth rates in the new budget. The government is aiming for growth of 3.8 per cent of GDP, but Mansour expected it not to exceed 3.2 per cent, even if all the reforms were implemented. Amin highlighted inaccuracies in the GDP figures. “The number has been calculated by the Ministry of Planning, which has limited capacity with regard to employees qualified to gather and analyse all the needed data,” he said. As a result, the GDP figure was inaccurate, meaning that all the figures based on it were as well. Official GDP figures in the new budget are LE2.077 trillion, as compared to LE1.77 trillion the previous year.
