A finance law - it seems - in the history of the country did not enjoy a consensus of social and political parties and civil society actors on the inevitability of its failure to achieve the set goals, as happened with the current law for the new year 2023, as it was met with general and comprehensive rejection and with calls to address the measures it contained that violate - In the eyes of the group of rejecters - deepening in injustice against individuals and institutions and burdening them with taxes, duties and sins, in the complete absence of solutions to revive the national economy, which suffers from a double crisis that combines stagnation (or limited and fragile growth) on the one hand, and creeping inflation on the other hand, which is what It is expressed in the economic literature as "stagflation".
The reasons for this controversy can be summed up in a number of points, perhaps the most prominent of which are: excessive reliance on tax collection, the remarkable increase in the size of the approved budget, and the expansion of expenditures in light of the negative contexts in which it falls.
Debate is still raging among the Tunisian elites, including experts, professionals, politicians, civil society organizations, the media, and others, about the extent to which this law can be implemented and its procedures implemented in reality, in light of the blockage of financing prospects, after the International Monetary Fund’s handling of the Tunisian request was postponed on December 19. The first past indefinite.
Why all this controversy over the law? What are the risks involved economically, socially and politically? And then, what are the defects that brought him this unprecedented consensus on the inevitability of failure?
reasons for controversy
The reasons for this ongoing controversy can be summed up in a number of points, perhaps the most prominent of which are: excessive reliance on collection, the remarkable increase in the size of the approved budget, and the expansion of expenditures in light of the negative contexts in which it descends, in addition to optimistic and unrealistic expectations, and even some positive measures that are included in it. There is no guarantee To be able to implement it and provide the necessary funds for it.
Excessive reliance on taxation
Among the remarkable aspects of the budget approved for this year is the high percentage of fiscal resources, which amounted to 87% of the total budget, which is a very high percentage and unprecedented in the history of the country's public finances.
This increase is due to the approval of a package of new taxes on individuals and institutions, the most important of which is the introduction of a wealth tax of 0.5% on real estate whose net value exceeds 3 million dinars, and the increase in the value-added tax from 13% to 19% for some liberal professions such as lawyers. Translators and others, and applying a 20% financial fine when cashing out amounts equal to or greater than 5,000 dinars, with a minimum ceiling of 2,000 dinars applied in all cases.
In addition to the increase in the fines on tax declarations that are due or late from half a point to 5 full points, as well as the increase in registration parameters and the tax stamp on supply orders, tax concessions certificates, and others.
What is noteworthy about these tax measures is the exemption of the banking sector from them, which suggests a trade-off between the government and banks - which recorded a high profit rate compared to what other sectors are witnessing - in exchange for an increase in the directorate interest rate, of which these banks are the first and only beneficiaries.
These new tax measures sparked outrage and generated widespread resentment in various circles, which made some observers and experts describe the law as a collection law and not a financial law, and they recalled the famous saying of the scholar Ibn Khaldun, "If taxation increases, the state is about to end."
Unjustified expansion of expenses
One of the glaring paradoxes involved in the new budget is the noticeable and unjustified expansion of expenditures in a way that previous budgets did not know, despite the fact that it suffers - in turn - from a chronic structure.
The new budget recorded an increase of 14.5% compared to the supplementary budget for the past year 2022, which is a record increase compared to previous cases, but the correct comparison is that which is between the current original budget and the previous original budget, because the history of budgets in Tunisia, especially after 2011, was not spared. It is all from presenting a supplementary budget every year, given the fragile and unrealistic hypotheses that are adopted and the budget is prepared on its basis each time, which calls for remediation and correction of numbers.
Therefore, if we adopt this scientific and methodological approach, the result is shocking to everyone and is a sufficient reason for this comprehensive rejection of the new budget, as the rate of increase exceeds 32% in a severe economic, financial, social and political circumstance that needs a reverse course towards more austerity and control of expenditures, especially The doors of financing are closed, even if some of them are opened, its terms will be very unfair, due to the complex and deep crisis the country is suffering from and its obtaining the lowest credit ratings from most of the sovereign numbering agencies of countries.
Among the provocative reasons for this controversy over the law - and the economic balance that also directs it - is its reliance on expectations that lack a lot of realism, and its presentation of hopeful figures that are very difficult to reach in normal circumstances, in addition to the difficult exceptional circumstance that the country is going through.
negative public contexts
There is no reason, then, for an expansionary policy in light of the decline in growth and its tendency towards contraction, as the figures circulated in the economic balance indicate a reduction in expectations from 3.2% to only 1.8% this year, in addition to that the International Monetary Fund does not expect more than 1.6% in At best, in the form of the country's economy heading towards recovery.
In addition, inflation in the budget is accompanied by unbridled price inflation, whose rates today reach unusual rates of 9.8% last December (and 39.8% for foodstuffs), and it is expected to reach 10.5% this year.
In addition, the continuous raises of interest rates by the Central Bank have proven their repeated failure to contain inflation, as they witnessed a noticeable increase by 175 points during the year 2022, to reach an unprecedented level also by 8%, which necessarily reflects negatively on many other economic complexes, such as investment and thus production. And the cost of indebtedness, as it recorded an increase in public debt service by 44.4% compared to 2021, the rise in prices and the deterioration of purchasing power.
In the same context, the new finance law recorded an increase in the rate of tax pressure to 25.1%, which is the highest in the Arab world and Africa, in addition to a decrease in subsidy expenditures by 25% for fuel and 30% for basic materials without a comprehensive vision for treatment.
Hard currency reserves also shrunk to the level of only 96 days.
Unrealistic expectations
Among the provocative reasons for this controversy over the law - and the economic balance that also directs it - is its reliance on expectations that lack a lot of realism, and its presentation of hopeful figures that are very difficult to reach in normal circumstances, in addition to the difficult exceptional circumstance that the country is going through, such as the expectation of a decrease in the budget deficit to 5.2. percent of GDP thanks to the increase in revenues through measures, most notably the imposition of a tax on real estate wealth, and expectations of an increase in phosphate production by about 400 thousand tons, while the economic balance provides for the continuation of the structural problems of the sector, and expectations of the state’s ability to gradually control financial balances by raising In the pace of growth and investment promotion, while the national saving rate - which is an indicator of investment development - is witnessing an unprecedented continuous decline (only 4%, which is the lowest in the Arab world and Africa).
Positive measures without ensuring the ability to implement them and provide the necessary funds for them
The new Finance Law included some positive measures, but the credibility of implementation remains dependent on providing the required funds, such as granting interest-free loans not exceeding 5 thousand dinars per loan to finance activities in all economic fields, in support of project financing for vulnerable and limited-income groups, and raising the maximum amount. For loans granted by the Tunisian Solidarity Bank to holders of high degrees from 150,000 dinars to up to 200,000 dinars for a single loan, and to encourage investment through a total or partial exemption for vehicles supplied by Tunisians residing abroad, within the framework of realizing projects or participating in them, and creating a line to finance private companies. It is allocated for issuing loans on preferential terms, with an appropriation of 20 million dinars from the resources of the National Fund for Employment.
These are mainly social measures, but if they are to see the light, they will undoubtedly have implications for private investment.
But the question is: How can it succeed in light of the comprehensive difficulties facing the entire national economy, foremost of which is the solution to the financing dilemma and not being limited to the traditional paths, which require passing through the International Monetary Fund portal with its unfair conditions.
glitches
In front of this bleak picture of the country's economic landscape, from which regional and international indicators have multiplied, which are also witnessing dangerous fluctuations, it is worth reflecting on the imbalances surrounding the Finance Law on the one hand, and the content of the economic balance directed at it on the other hand, in order to explore ways of rescue and paths of reform.
The most important of these can be summarized as follows:
Estimates do not have factual documents
The contemplator of the goals set in the economic balance and the corresponding procedures in the Finance Law realizes the size of the gap between the two shores, the bank of aspirations and estimates on the one hand, and the bank of what is capable of achievement and realization on the other hand.
The economic balance defines the following objectives: “Reducing the exacerbation of the level of budget deficit and achieving the sustainability of public debt by strengthening the state’s own resources through progress in the course of fiscal reform and restructuring of public institutions, in order to control their balances, improve their performance, and enhance their role in creating wealth and supporting the economy on the one hand, And good management of the public sector by rationalizing public spending and reducing, as much as possible, leasing and subsidy expenses, in order to provide a financial margin for public investment on the other hand.
They are traditional goals mentioned in all the aforementioned formulas, and they lack a comprehensive strategic vision and scientific criteria for performance in order to facilitate the evaluation of the achieved and the comparison between it and the unachieved in order to identify the causes of non-achievement and work to avoid them in the subsequent steps.
When the procedures that embody these goals state that “it is required to mobilize borrowing resources in the amount of 24.5 billion dinars, coming from 66.2% of external borrowing,” without providing any explanations about the source of these loans, especially in light of the delay in the Monetary Fund’s consideration of the Tunisia loan file, or to say With the development of the state’s own resources by 12.9% compared to the amending Finance Law of 2022, to reach 46 billion and 424 million dinars
,
In relation to the expected significant increase in tax revenues, non-tax revenues, and donations by 12.5% and 15.7%, respectively, without specifying the practical mechanisms that would bring about this desired development, the estimates become closer to aspirations than objective facts that can be achieved compared to previous performance standards that have been reached.
It is also estimated that the tax pressure rate for the year 2023 will stabilize within the range of 25% of the output, compared to 24.9% in 2022, as stated in the new economic balance document, while the rate of dependence on taxation increased to 87% of the budget without considering the direct effects of this upgrade. At the tax rate, the estimate becomes meaningless.
In the same context, there are estimates related to the decline in the expected rental cost, which was estimated at 14%, while today it is 15.1% and is expected to increase if a new social contract is not reached.
In addition to the absence of an estimate of the reflection of the decline in the value of the dinar on the cost of servicing the external debt and the high interest rate on the internal debt, all of this is one of the main defects that both the Finance Law and the accompanying economic balance complain about. An objective fact that is difficult to refute.
Fragile hypotheses multiply the possibility of inability to achieve
In addition to erroneous estimates, the economic balance includes a number of fragile assumptions that were not proven to hold in reality in previous budgets.
Therefore, insisting on it is a kind of bureaucratic planning that does not reflect a practical will to achieve.
In this regard, the hypothesis of expecting a growth rate of 1.8% comes, which is a higher rate than the fund expects (1.6%), in addition to basing all estimates on the assumption of reaching an agreement with the fund to obtain a loan of $1.9 billion without taking this into account. Lack of success or delay in achieving that, as is the case today without developing alternative options and possible scenarios with multiple outcomes.
Also, building the budget on the assumption of an average oil price of $89 per barrel indicates a lack of realism, because most of the objective estimates - including those issued by organizations and bodies specialized in the sector - indicate that this price has exceeded the ceiling of $100 and is expected to exceed $125 in 2023. It should be noted the absence of two hypotheses that are no less important than the previous hypotheses, in terms of their impact on the overall macroeconomic complexes, namely the hypothesis of the exchange rate of the dinar, which witnesses successive slips over the past year, estimated at 11.3% compared to the dollar, and the hypothesis of the price of a ton of grain, which in turn is witnessing an upward trend. Missiles exceeded the $500 ceiling, while the average over the past year was around $320.
The absence of an economic vision and a developmental vision to get out of the impasse
The third defect lies in the absence of a clear economic vision and a new developmental approach that all previous and subsequent governments have long preached without exception, without taking a practical step towards crystallizing it and reaching a national consensus on its content, titles and identity.
It is not possible to think at all about getting out of the crisis, apart from thinking about changing the approach and formulating the new approach within a new strategic vision with a horizon of at least 20 years.
However, the authors of the economic balance confuse the strategic vision with the developmental approach and the interim plan, so you find them addressing the annual program as “2023 vision” and talking about the 2035 vision without defining its features or presenting its content or reference.
For this reason, difficulties will continue to haunt the economy unless there is a real shift in ideas and perceptions, and unless our economic choices and financial and fiscal procedures stemming from it fall within the core of a broad-minded strategic vision, from which a developmental approach emerges leading to a deep economic dialogue that brings together the competencies and experiences of the nation, whatever their opinions and orientations may be. intellectual and political without exclusion or exception.
what to do
However, the economic dialogue required to crystallize the new development path will not work if the country continues in the labyrinths of the current political crisis, which is about to come to the country's gains over the past six decades.
The political instability that Tunisia experienced during the last decade, which intensified from July 25, 2021, as well as the failure to carry out real economic reforms and establish good and effective governance, heralds the collapse of the economy and national state institutions.
A way out of the deep crisis that Tunisia is experiencing today can only be achieved by resolving the acute political crisis in the country through a serious and responsible national political dialogue between all actors, so that the country can return to the path of democratic transition, political pluralism, and recourse to the ballot box.
Then, in parallel with the political dialogue aimed at resolving the political crisis, it is possible to talk about an economic dialogue based on the actual involvement of experts and the components of civil society to consider urgent and future means of rescue and the actual launch of the reform process with a different approach and purely national options.
Other than that, the way is clear and the door is wide open for the Paris Club, if the initial consultations have not already started some time ago, and there does not seem to be a third option other than that.
Will the Tunisians be able to avoid the pitfalls of this road?