Two new pieces of legislation approved by the People's Assembly underscored the severity of the deficit crisis in Egypt over the past five years, reports Gamal Essam El-Din On 18 May, the People's Assembly -- Egypt's lower house of parliament -- approved two legislative amendments aimed at both raising taxes and levying new fees on a list of goods and services. The first piece of legislation, an amendment of the 1991 sales tax law, proposes increasing the sales tax levied on mobile phone calls and services from 15 per cent to 20 per cent. Sales tax on hotels, restaurants and transport services will also be increased from 5 per cent to 10 per cent from next July. According to the second amendment -- of the financial fees law of 1984 -- the "income development fee" imposed on both imported and locally produced cars will be raised from the current 3 per cent to 8.5 per cent next October, depending on the size of the engine. No charges will be levied on cars with an engine capacity below 1,000cc. In addition, all citizens, whether foreign or local, will be required to pay a departure fee of LE50 at all exit points -- whether air, sea or land -- from next October, and a 25 per cent charge will be levied on all travel tickets originating in Egypt. Though far less modest than the original increases suggested by the government, the tax hikes have sparked a wave of protest among ruling National Democratic Party (NDP) and opposition deputies. These protests were further fuelled by the fact that the government submitted the amendments less than 24 hours prior to the vote on the 2004/2005 budget. While NDP MPs warned that sharp price increases could trigger wide-scale public protests and exert a dampening effect on the market, members of the opposition pointed out that poor and low-income citizens would be hardest hit by the new increases. In response to this criticism, Prime Minister Atef Ebeid said the government's decision to impose the new taxes had two principal objectives. "The increases are aimed at both rationalising public spending and tackling the budget deficit, which is expected to increase from the current LE43.1 billion to a record LE52.3 billion in 2004/2005." Finance Minister Medhat Hassanein said the new charges are expected to generate LE1.5 billion in revenue. According to Hassanein, public expenditure increased from LE159.6 billion last year to LE177 billion in 2004/2005 (an 11.2 per cent increase), "which was necessary to help the government meet some of its social obligations". The most important of these obligations was to raise the salaries of government and public sector employees by 10 per cent, he explained. This increase in salaries, argued Hassanein, is largely responsible for the widening of the budget deficit to its new record figure. Hassanein explained that a 10 to 15 per cent annual increase in public expenditure, compounded by a 15 to 25 per cent decrease in revenues each year, has led to a dramatic surge over the past five years in both the budget deficit and public debts. Hassanein also argued the new taxes and fees will help rationalise public spending on a list of luxurious goods such as deluxe cars and mobile phones. He said that increased spending on such goods stokes inflation; discouraging higher and low- income earners from buying luxury goods helps stablise the rate of inflation. A recent report by the Central Auditing Agency (CAA) said in 1995/1996 the budget deficit registered its lowest ever figure of LE6 billion, or 2.7 per cent of GDP. Since then, the budget deficit has proceeded to climb, surging by an unprecedented 36.7 per cent to LE13.9 billion the year Ebeid took office. The deficit for 2003/2004 peaked at LE42.2 billion or 10.3 per cent of GDP. To make matters worse, the report stated that while the previous figures were merely provisional, actual deficits were much higher. Opposition MPs have laid the blame on Ebeid's government for the massive deficit increase. "The only action which this government takes to cover the budget deficit is to raise taxes," said Kamal Ahmed, an independent MP with Nasserist leanings. Ahmed said while he is not objecting to the new increases, he wonders why luxury goods such as private yachts and planes, summer chalets on north coast and mansions are excluded from increasing taxation. Rifaat Bashir, an independent MP, warned that the tax increases could spark public protests similar to the food riots that Egypt witnessed in January 1977. NDP spokesman Hussein Megawer said NDP MPs had tried to dissuade the government from levying further charges on public transport, a move that would have affected those in the low-income bracket. Ahmed Ezz, chairman of parliament's budget committee, said criticism from MPs convinced the government to scrap a proposed tax increase on telegraph and fixed telephone services. "The current level of 5 per cent tax will be maintained, rather than increasing taxation to 10 per cent as suggested," said Ezz, which again would have hit lower earners the hardest. Tax hikes on imported and locally produced cigarettes were also abandoned. According to Ezz, cigarette sales fell over the past two years from nine billion to five billion, and "additional price increases could lose the government an important source of revenue".
