BEIRUT: Despite the rumors that have abounded over the past few weeks, it is unlikely that a major public sector salary hike endorsed by Parliament last year will be repealed, two economists and Lebanon’s caretaker economy minister said.
Instead of a full-scale repeal of the raise, known as the Salary Scale Law, or Law 46, certain steps could be taken to reduce its burden on Lebanon’s dismal finances, caretaker Economy Minister Raed Khoury told The Daily Star, without going into the details.
“We have to see what can be done to decrease the impact of the salary scale on finances, in terms of the benefits it gives to employees and retirement packages,” Khoury said.
He said the salary scale was already being implemented, and that its implementation could therefore not be delayed as some have suggested, but, “with the way things are now, we can’t give these benefits to [employees].”
Endorsed by Parliament last year after years of demonstrations by public sector employees, the legislation was expected to cost an additional $1.4 billion, but instead is set to cost roughly $2 billion, economic consultant Ghazi Wazni told The Daily Star.
Caretaker Finance Minister Ali Hasan Khalil declined to comment on the issue, but in a news conference Tuesday, he said that numbers being circulated on the cost of the salary scale were being overblown. He did, however, acknowledge that there had been at least $220 million more spent on the law than expected, due to more people than usual heading into retirement and due to increased employment in the public sector.
If that wasn’t bad enough, the state had expected to partially fund the law with LL1.5 trillion ($1 billion) from regressive taxes Parliament endorsed alongside the salary scale, but Wazni said this was set to generate only LL800 billion to LL900 billion. “The state underestimated expenditure and overestimated revenues,” Wazni said.
Explaining the gap between the state’s expected and actual revenue from the taxes, Jad Chaaban, associate professor of economics at the American University of Beirut, told The Daily Star “they forgot that these taxes lead to stagnation of the economy and people purchasing less.”
He said that any move by officials to amend or repeal the law would not be politically viable and would likely lead to widespread protests by civil servants and military personnel.
Despite the large size of the salary scale, Chaaban said the main increases in state expenditure from this year over the last had been in electricity subsidies and foreign debt servicing. “Wage restructuring is a large component, but not the main one,” he said.
So, instead of depriving Lebanese workers of their “right” to the salary scale, Chaaban said the government should lower public sector spending on other fronts, in addition to curbing corruption. “And if they want to do taxation, do progressive taxation [according to income],” he said.
Wazni agreed that a solution could only come from the side of public sector reforms. He called for a mandatory three-year public sector hiring freeze to allow for what he said was about 25,000 public sector employees to go into retirement, thus reducing the burden of salaries.
A hiring freeze mandated by the 2017 state budget has not been respected by many public instructions, including ministries and municipalities. There are ongoing investigations by the Central Inspection Bureau and Parliament’s Finance and Budget Committee into those hirings.
The finance minister had said at his news conference that about 5,000 people had been hired in 2018, “creating an extra burden.”
Finance and Budget Committee Chair MP Ibrahim Kanaan could not be reached for comment despite repeated attempts, nor could the committee’s rapporteur, MP Nicholas Nahhas.
“Lebanese politicians cannot postpone the salary scale, nor cancel it, they are obliged to pay. But they could try to prevent this situation in the future [by enacting] serious public sector reforms,” Wazni said.