Lebanese president ratifies public sector wage rise, tax hike

BEIRUT - Lebanese President Michel Aoun signed off on public sector wage increases and related tax hikes on Monday, a move that has triggered business concern but could help politicians shore up support ahead of parliamentary elections next year.
Aoun held off ratifying the two laws since parliament approved them last month amid objections from the business community about the economic impact of more taxes on Lebanon's fragile economy.
Finance Minister Ali Hassan Khalil, a proponent of the laws, said the move would "reflect positively on social stability". He said it would cost an estimated 1.38 trillion Lebanese pounds ($920 million), while the tax increases would bring in revenue of 1.65 trillion pounds ($1.1 billion).
But Nassib Ghobril, chief economist at Lebanon's Byblos Bank, said it was difficult to gauge how much it would cost because "we don't know how many employees there are in the public sector".
"It's difficult to put a real, credible figure on the cost of the public sector salary scale," he said.
The public sector pay scale law has been under discussion for years.
Ghobril said the public sector needed "fundamental and in-depth reforms" before salary increases. Without that, the new legislation amounted to a major "redistribution of income ... to a bloated, inefficient and largely unproductive sector".
The tax law raises value-added tax (VAT) by one percentage point to 11 percent and hikes corporation tax to 17 percent from 15 percent.
While increased public sector pay will prove popular among state workers, the proposed tax increases triggered several protests earlier this year. Some public sector workers had also demonstrated in recent days calling on Aoun to sign the laws.
Many economists say Lebanon should focus more on fighting tax evasion rather than raising new taxes to finance public sector pay increases.
Ghobril said that after years of deliberation, politicians probably passed the laws now "because we're coming close to parliamentary elections".
Lebanon is expected to hold long-delayed elections in May 2018, after the cabinet approved a new vote law that prevented a major political crisis. Lawmakers have extended their own mandate twice since being elected in 2009 for what was meant to be a four-year term.
The new legislation will take effect once it is published in the government's official gazette. Aoun had chaired a meeting of public and private sector figures last week to discuss the points of contention in both laws.
Aoun's election last year ended a 29-month presidential vacuum in a country that had been crippled by political gridlock for years.
Sunni leader Saad al-Hariri became premier in a power-sharing deal that saw Aoun, a staunch Hezbollah ally, elected president. Saudi-allied Hariri then formed a unity cabinet that includes nearly all of Lebanon's main parties.