More than 25 per cent of Egyptians are classified as poor and the percentage doubles in Upper Egypt governorates. The rate was on the rise during the last years of the ousted Mubarak regime despite the increasing growth rates back then. A promised trickle-down effect through which fruits of high growth rates would eventually be reaped by the less fortunate in society never happened. The wide gap between income levels and life standards between Egyptians was one of the main triggers of the revolution. Admitting that just targeting higher growth rates will not guarantee the welfare of those with limited incomes, the financial plan according to which the 2013/2014 budget was designed, says the government will adopt a pro-poor growth based on “increasing employment, dealing with inflation, equality in resources distribution and upgrading social safety nets.” Some experts studying the plan and figures of the budget believe those targets were not prioritised when the budget was put. The way the budget is set up means that the poor and less fortunate will shoulder the brunt of austerity measures, said Samir Radwan, a former minister of finance and an economic expert. The government depends on indirect taxes which are known to be the less fair as they are equally levied on those with different incomes, according to Radwan. Radwan, who was the first to suggest increasing the minimum taxable salary from LE9,000 to LE12,000, finds it totally unfair now. Many NGOs put the minimum wage level that can secure the minimal basic needs of a worker at LE1,500. “That was OK back then, two years ago, before the increase in prices and the planned changes in fuel pricing that would have a contagious effect on the cost of living.” The International Monetary Fund (IMF) said on Tuesday it expects inflation in Egypt to climb to 10.9 per cent this year, the highest level since 2010, reflecting recent and planned subsidy cuts and, in some cases, pressure from monetisation of fiscal deficits and supply shortages. According to the new income tax, those who get LE1,000 and up to 30,000 per month will pay 10 per cent of their income as taxes. Most of the income tax revenues come from taxes paid by government employees whose salaries are already low according to Radwan. According to the budget those employees are expected to pay LE21.4 billion in taxes and LE2.9 in stamp taxes in the 2013-2014 budget. In an article published by the Al-Ahram newspaper Ahmed Al-Naggar, head of Al-Ahram's Centre for Political and Strategic Studies, describes the budget as biased against the poor and middle class, saying it “transfers the consequences of the failure of the current government to manage the economy to the new generation by trying to cover the deficit through borrowing.” The value of interest rate payments in the new budget comes at LE182 billion, 31 per cent higher than the 2012/2013 figure. According to Al-Naggar, if the deficits and interest payments on debt in fiscal years 2012/2013 and 2013/2014 are added and then the due debt payments of the two years were deducted from that sum, the net debt in the two fiscal years will mount to LE393.5 billion. Moreover, the foreign debt jumped by $11 billion after the revolution to almost $45 billion after acquiring loans from Qatar, the Islamic Development Bank, Libya and Turkey. “Mubarak who stayed in power for 30 years left the country with a LE912 billion internal debt and $34 billion external debt.” As for social services which should mainly target the poor who cannot afford private hospitals or expensive schools, the figures are disappointing. While Mohamed Morsi promised in his presidential campaign to increase spending on education to five per cent of GDP, the first budget with him as president puts the figure at LE81.3 billion, equivalent to four per cent of GDP. The average in the Middle East and North Africa region is 5.2 per cent. The allocations for health is LE32.7 billion which is 1.6 per cent of GDP compared to an average of 2.7 per cent in the group of poor countries and to 1.5-1.9 per cent before the revolution. “Those who belong to the poor, limited income and lower middle class should not be expecting any improvement in medical services,” wrote Al-Naggar. It is not a matter of low percentages. The figures are more disappointing when compared to the previous years while taking into consideration the inflation levels. According to Radwan, with fixed prices, after deducting the inflation rate, the allocations for health and education are less than before. Moreover, Radwan said the bulk of those allocations are not directed to upgrade the quality of services provided but spent on salaries to employees in the ministries of health and education. “Those two ministries in particular have huge payrolls.” One of the thorniest issues in the new budget is energy subsidies. The government spends around a fifth of its budget on fuel subsidies, and the government is under pressure to reduce them to plug the fiscal deficit. A reduction in energy subsidies is widely seen as an important step towards allowing Egypt to secure a $4.8 billion loan from the IMF to shore up its finances. “Decreasing subsidies will only over burden the Egyptian households and this should have been our last policy as we should have started by increasing salaries and taxes,” said Radwan. The value of energy subsidies this year is LE100 billion, almost the same as last year's despite subsidies rationalisation policies, a fact that experts attribute to the increase in the dollar value which pushed up prices of imports to swallow all the savings from lowering subsidies. And while increasing unemployment is one of the budget's main targets as mentioned in the financial plan, the investments needed to provide job opportunities are less than expected, according to Al- Naggar. The overall investments figure hover around LE291 billion; state investments are projected to be LE67 billion counting for only 22 per cent of this figure and equivalent to three per cent of GDP. “Even if private investments pushed the overall investments to 12 per cent, as expected in the plan, this would be so low compared to the current average of 37 per cent of GDP in the developing countries,” explained Al-Naggar.
