There’s one thing worse than a president who implements unpopular decisions. It’s a president who is scared to do so.
In yet another swift turnaround, Egypt’s President Mohammed Morsi has back-tracked on plans to raise taxes on a range of services and goods only to damage further his credibility in the eyes of public and the international community.
Months of planning that include increasing the top-level income tax rates and implementing a 1% sales tax have fallen through without any real explanation. Fundamentally, the tax increases are part of the government’s aim (under the IMF programme) at reducing the 11% budget deficit by increasing government revenues.
Morsi’s only justification was that the taxes would amount to a “burden” on the average citizen, Egypt Independent reported:
“The president of the republic feels the pulse of the Egyptian street, and he realizes how much the citizen is bearing and struggling from his burdens in this difficult economic period,” the statement said, according to the website of the state-owned newspaper Al-Ahram.
Morsi’s move has in fact worsened the economic position of the average Egyptian. The most important taxes (the top-level income tax and sales tax) are likely only to affect a certain part of the Egyptian population that can afford to pay more. Meanwhile, additional taxes, including the luxury tax on cigarettes, soft drinks and beer may do Egypt some good.
Many Western cities and countries have adopted a “nanny-state” approach for years to encourage their citizens to lead healthier lives, by raising the price of cigarettes and alcohol. As a result, a 20-piece pack of Marlboro’s will set you back $12.50 in New York, while the same packet will cost just $2.1 in Egypt. A twice-a-pack-a-day habit would cost a New Yorker $9,000 a year.
Egypt, however, is still stuck in the 1950s, when other countries have moved on. How can we take Egypt’s economy seriously when straightforward tax measures cannot be implemented?
Above all, Morsi’s most critical mistake has been to make decisions in a void, without consultation with the public.
The tax plan was signed into effect on December 6 and was not made known to the public until December 9 (four days later).
Then when Morsi faced a huge backlash to the hikes, he delayed the hikes. All of this was in the absence of “societal dialogue”. If the public understood the benefits of paying more for electricity and water, that might deter usage and help alleviate the huge domestic consumption of both. Meanwhile, taxes could pay for nationwide programmes such as energy subsidies so the neediest still get access to cheap fuel.
The public must realise that taxes are inevitable. Convincing the people why this is the case is Morsi’s real job.
Next year should be characterised by tough spending cuts and taxes that aggressively tackle Egypt’s deficit. Yet, the biggest question is how the government will make these cuts and whether they will be enforced in another black hole.
While Morsi continues to make populist decisions rather than the right ones, Egypt’s economy suffers.