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Will Lebanon finally pass a budget after more than a decade?

Although Lebanon’s Cabinet approved a proposed 2017 state budget, the legislation still has to overcome several obstacles in parliament.
Lebanon's President Michel Aoun attends the 28th Ordinary Summit of the Arab League at the Dead Sea, Jordan March 29, 2017. REUTERS/Mohammad Hamed - RTX336G0

Draft legislation that could become Lebanon's official budget is on its way to parliament. Although such news isn't considered unusual in other countries, it is extraordinary in Lebanon, as the last time the country's lawmakers approved a draft budget was in 2005. Successive governments' attempts to pass budgets have been stymied by differences between two political parties, the March 8 and March 14 coalitions.

President Michel Aoun on April 12 inked a decree submitting the 2017 draft budget, which the Cabinet had approved March 27.

Government expenditures in the past 12 years were set by applying constitutional provisions that state when a final decision on the budget is delayed until after the end of January, “the budget of the previous year shall be adopted as a basis" until a new budget is approved.

Since 2009, the Free Patriotic Movement (FPM) has been accusing Fouad Siniora, who was prime minister from 2005 to 2009, of spending $11 billion in extra-budgetary funds without consulting parliament or abiding by the state oversight institutions during his term. Also, the March 8 Coalition and the FPM accused Siniora of scuttling all budgets since he left that office, as he has demanded since 2010 that the $11 billion in expenditures be discharged in exchange for the Future Bloc’s approval of the rank and salary scale bill and budgets. Siniora is the current leader of the Future Bloc.

At the April 6 parliament session, Nawaf al-Moussawi, a parliament member for Hezbollah, asked for an accounting of where the $11 billion had been spent. Siniora responded, “The disbursement of every penny of the $11 billion is registered at the Ministry of Finance. I left office at the Ministry of Finance 13 years ago. Why haven't the successive finance ministers completed the year-end closing of accounts?” Siniora had been finance minister from 1992 to 1998 and from 2000 to 2004.

He called for an end to “the circulation of rumors and many lies."

The $11 billion has been a major contention between the Future Bloc and the FPM, with the latter publishing a book titled “The Impossible Exoneration” in 2013. The book outlines legal and financial accusations against Siniora from his tenure as finance minister under now-deceased Prime Minister Rafik Hariri’s governments and while heading the Cabinet. (In response, the book "Slander in the Exoneration Book" was published and Siniora wrote the foreword.)

Finance Minister Ali Hasan Khalil explained at a March 30 press conference that expenditures under the 2017 draft budget are estimated at 23.7 trillion Lebanese pounds ($15.7 billion), and revenues at 16.4 trillion pounds ($10.8 billion). Thus, the deficit amounts to 7.3 trillion pounds ($4.8 billion). This is added to the 7.2 trillion pounds in foreign debt interest, 7.4 trillion pounds in salary expenses and 2.2 trillion pounds in electricity spending, he added.

After the March 16 and 19 mass protests against tax hikes — which are designed to fund the salary scale increase — the Cabinet partially amended the draft budget and referred the value-added tax increase to parliament. It added to the draft budget tax increases on financial institutions, bank deposit interest, real estate sales and other taxes. It also added taxes on $5 billion in windfall profits earned by the banks in 2016.

The first version of the draft budget left out more than 2.28 trillion Lebanese pounds in revenues from the tax on profits made by the banks in swap operations, conducted by the Central Bank, and the windfall profits tax revenues. The amended draft, however, includes those revenues. Economist Ghazi Wazni warned against replacing tax increases on bank deposits, investment companies and real estate registration with revenues originally due to the state. This would mean that the banks would pay a one-time tax of $850 million and avoid paying a tax increase of 5-7% on deposits.

Wazni told Al-Monitor that the amended draft budget does not include taxes that were approved in parliament in March to fund the salary scale increases. He explained that those increases will be included in the budget once it's approved. Yet, he added, the money needed to fund the salary scale increases should be approved by parliament, which requires a consensus among all major blocs. He pointed out that the budget and the year-end closing of accounts from past years should be submitted to parliament simultaneously.

There are several obstacles to approving the state budget, Wazni said. Most prominent among these: Money must be made available to fund the salary scale increases, and issues related to the year-end closing of accounts from the previous years must be settled and approved by the Audit Bureau.

Wazni indicated that to avoid disagreements, especially over the $11 billion, parliament can approve the draft budget while giving the Cabinet a deadline to prepare the account closings and preserve the Audit Bureau’s right to oversight.

A final approval of the draft budget is supposed to be delayed until a new electoral law is enacted. On April 12, Aoun invoked his constitutional powers to adjourn for one month the parliament session that had been scheduled for April 13 to extend parliament's term and avoid a legislative vacuum, as the deadline for registering to vote in the general elections hadn't been met.

Now, the next parliament session is set for May 15 to discuss a new election law. If parliament agrees on the law, a technical extension of parliament's term will be needed for a few months to prepare for the elections. The draft budget is supposed to be discussed in parliament after a new election law is endorsed, amid concerns about a delay in passing the budget until after the elections.

In the meantime, National Social Security Fund employees protested last week against two articles in the budget that they say would exempt businesses and the government from having to pay into the pension and insurance fund and could lead to its eventual privatization.

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