A Weak President, A Weak Economy

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.



2 Comments


  • Posted December 10, 2012 at 11:25 am | Permalink

    Welcome back to Egypt!
    Two points I think are worth adding

    One: I really don’t know how people (FJP, opposition and media) can credibly get away with acting like a bunch of innocent schoolgirls shocked (shocked, we tell you!) to lay eyes on these tax changes. Yes, some details are new and somewhat surprising, but they are broadly in line with the government’s IMF approved economic plan, which has been publicly available for weeks. (Arabic pdf here, sorry for the ugly link: http://gate.ahram.org.eg/NewsContent/14/57/277838/%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF-%D9%88%D8%A8%D9%88%D8%B1%D8%B5%D8%A9/%D8%A3%D8%AE%D8%A8%D8%A7%D8%B1-%D9%88%D8%AA%D9%82%D8%A7%D8%B1%D9%8A%D8%B1/%D8%A8%D9%88%D8%A7%D8%A8%D8%A9-%D8%A7%D9%84%D8%A3%D9%87%D8%B1%D8%A7%D9%85-%D8%AA%D9%86%D8%B4%D8%B1-%D9%86%D8%B5-%D8%A7%D9%84%D8%A8%D8%B1%D9%86%D8%A7%D9%85%D8%AC-%D8%A7%D9%84%D8%A5%D8%B5%D9%84%D8%A7%D8%AD%D9%8A-%D9%84%D9%84%D8%AD%D9%83%D9%88%D9%85%D8%A9-%D8%A7%D9%84.aspx and an English overview here: http://www.egyptindependent.com/news/egypt-s-economic-reform-plan-revolutionary-social-justice-or-more-same ). I realize this has been a busy time—and that neither the brotherhood, the opposition, or the local media seem particularly interested in fiscal policy—but those who claim to be taken *completely* by surprise are either lying or woefully uninformed, and in either case should be ashamed of themselves.

    Two: It’s worth noting that—as far as I understand, and please correct me if I’m wrong—Morsi has suspended rather than cancelled the new taxes. In theory, his legislative powers will expire with a ‘Yes’ vote on the draft constitution, presumably meaning any change to tax law would have to go through parliament. Unilaterally codifying the new taxes while he still has the power to do so establishes the changes as facts on the ground; suspending implementation means uncomfortable discussions are delayed until after the constitutional referendum. Given this, and the small window between the referendum on the 15th and the IMF meeting on the 19th, I suspect there’s a lot more going on here then Morsi simply backing down

  • fjofjowifjwo
    Posted December 11, 2012 at 9:07 pm | Permalink

    “There’s one thing worse than a president who implements unpopular decisions. It’s a president who is scared to do so.”
    Why the hell is that worse ffs. What does this say about your political perspective?

    “Meanwhile, taxes could pay for nationwide programmes such as energy subsidies so the neediest still get access to cheap fuel.”
    US/IMF program cuts energy subsides, not funds them through taxes on the poor. Who are you trying to fool?

    “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. ”
    Deterring usage of water and electricity in a desperately poor country. They use too much! How nice. If only the stupid rabble could understand their social betters that its for their own good.

    “The public must realise that taxes are inevitable. ”
    They’re not. And combining their implementation with the revised income tax rate is a crude trick. When they are forced through, by whichever party, hopefully it’ll expedite the fall of the utterly rotten Egyptian state.



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