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Professor Jbadim Ajaj
Since the adoption of the budget last Friday and the statements of politicians from all parties and all communities around their contribution "essential" to the adoption of a budget, they are not entirely satisfied but they see it as a "reform". The citizen asks the following question: where is the reform of this budget in the absence of any procedure to solve the problem of the maritime and fluvial properties and the railways, and to fight against the customs smuggling at the borders land, sea and air and reduce tax evasion, cause plagues …? Citizens is a reduction in the budget deficit preceded by the first seven months of this year to put an end to the payment of government accounts payable and investment projects (carried forward to subsequent years). Of course, this will lead to a recession in the best of times and to an economic slowdown in the face of a deteriorating situation.
In this climate, we ask ourselves the question of the measures taken by the Authority to stimulate economic growth? Of course, if we exclude the cedar conference projects, which are a budget for funding, we can say that no action is being taken in that direction.
What do you mean by being able to make budget reforms? How does science envision these reforms? More importantly, what should be done to get out of the economic situation in which we live?
Budget reforms in the eyes of the Authority
Political forces have launched the word "reforms" for all measures taken to reduce spending and increase incomes. This label is in part consistent with the use of the word "financial reforms" by the International Monetary Fund. The latter identifies reforms as all measures taken to reduce spending and increase revenues, with a focus on tax revenue, especially VAT, if the deficit is high.
At first glance, the government uses the term IMF to express its reforms, but the reforms it has made are not based on the reforms the citizen expects in any way whatsoever. It is enough to hold a referendum among the citizens to conclude that the majority of them do not believe in reforms and that the reforms that the citizen has designed are primarily aimed at fighting against corruption and waste.
Of course, we do not criticize the budget, because the budget is the most important law approved by the states, because it is this law that governs the financial, economic and social order in these countries. Between the option "no budget" and the option "without pay", we prefer the second option. We are therefore trying to highlight the shortcomings of the budget with a view to improving them in the 2020 budget.
The government has taken a number of measures that we do not know (due to lack of sufficient detail), which resulted in a reduction in spending in the first four months of 2019. Total expenditures during this period were 4.84 billion USD, against 5.73 billion USD for the same period of the year. 2018, down 15.45%.
Figures in the financial figures indicate that the item "expenditure from previous budgets" decreased by 18.42%, the item "internal debt service" decreased by 13.58%, the item "capital fill of the public debt" "Decreased by 5.13%," EDL "position. Down 2.88% …
In addition, the Minister of Finance, Ali Hbadan Khalil, made a decision last April asking the authors of the expenditure contract not to mention any expenses, except salaries and accessories, and transportation. This decision put an end to the State's payment of all trade and non-supplier receivables, with the exception of wages, public debt service and certain other items. Of course, reducing public spending by stopping payments will have a decisive effect on the parties with rights to the state, especially the private sector, which will lead to the decline of the economy.
The Authority's paper expenditure in the public budget has actually reached a margin that has already been achieved in the field through the decision to terminate the payment. Therefore, this action can not be described as reform work: the funds due are due and will be paid next year or the following year! This means that the reduction of the current account deficit can be artificial and that problems will be repeated in future budgets.
The reform advocated by the international community concerns first and foremost the electricity sector, but also tax evasion, customs smuggling, maritime and river badets, railways, public markets, restructuring. public sector, etc. And how can we forget in the light of all this corruption, which is a driver of all the irregularities that have occurred and that you get. Where is the independence of the judiciary? Where are the development plans? Where is the social welfare?
To be fair to the Authority, the 3% tax remains the main reform action taken in the 2019 budget. As the politicians say, the lesson remains to be implemented.
What does science say?
Two theories contradict the badysis of the impact of budgeted tax reforms on economic activity. According to Keynes' theory, the reduction in public spending leads to a significant reduction in economic activity because of the multiplier effect of the resulting decline in consumption.
In Ricardo's world, the theory says that the decline in public spending is fully offset by the relative increase in consumption, given that the present value of the future tax expected by the family is decreasing, which means that there is no impact on economic activity. Thus, the government must reduce the deficit in case of excess demand (the traditional economic situation), but it may be allowed to increase in case of oversupply (situation in Kenya). Any attempt to reduce the budget deficit during a recession could lead to a vicious circle.
In concrete terms, the study of historical data has not been able to prove either point of view, as these studies have not found a close relationship between deficit reduction and economic growth. For example, in three cases examined (Denmark 1982-1986, Ireland 1987-1989 and Sweden 1985-1987), Keynes' thesis that the reduction in public expenditure (8 to 13%) had improved consumption, had not been achieved. investment and growth until it accelerated was rejected. Largely thanks to the reduction of household deposits and therefore the increase in consumption.
Further studies have been conducted to determine the mechanism for reducing the deficit of economic performance. The results are as follows: A reduction in the budget deficit leads to an acceleration of growth because of the expectations of the private sector for future developments. While monetary policy plays a major role in deficit reduction, the conditions at the time of deficit reduction randomly affect consumption, which may be prone to increase or decrease.
All these studies could not quantify this effect, but they could provide a logical explanation by stating that the "uprooting" of the deficit (ie a significant reduction) plays a key role in the positive impact. consumer behavior, as the latter expects a reduction in future taxes. If the increase in the budget deficit leads to the depletion of private savings, interest rates rise and hit investment. The net effect of aggregate demand can be positive if public debt levels are low, but it becomes negative if these levels exceed a certain level. In the latter case, economic actors (households and businesses) expect one of the following three cases: state bankruptcy, restructuring of the public debt or significant increase in future taxes. And so impose a rise in interest rates to buy Treasury bonds or long-term, thus excluding public spending. Central banks rely on this principle to prevent the government from adopting an expansionary fiscal policy (high public spending).
Financial reform in Lebanon
In fact, financial reform can not be separated from economic, administrative, legal and environmental reforms, as public finances are affected by all these factors. For example, the independence of the judiciary is an essential element of confidence in the economy, which increases investment and consumption, because the investor knows that his rights are guaranteed, in particular the "sanctity of property" of the judiciary. The consumer and his confidence increase by increasing investments from employment opportunities provided by these investments. And what we say about regional development, which is a lever for public finances by raising taxes and reducing costs for the capital and its surroundings. The environment has become the nucleus of development policies around the world and one need only look at the Convention on the Reduction of Global Warming to emphasize its importance in public finances.
How can we forget to update our laws such as the unfair tax system, and history tells us that 80% of the world's countries use this progressive tax since the fall of the Soviet Union. What about roads, electricity, water, sanitation and other issues of interest to citizens and the economy and affecting So public finances?
We see the adoption of the budget in 2019, a positive step in terms of regularity of public finances, we believe that this budget has not proceeded to the necessary reforms. If Prime Minister Hariri said that the ministerial declaration elaborated the economic plan for Lebanon and that the budget for 2019 was part of it, we believe that the political division would disrupt this plan and the events of the tomb of the painful, but an example of this deadly disturbance.
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