Mon, May 21, 2012 - Page 10 News List

Jordan approves austerity to reduce deficit

Reuters, AMMAN

The Jordanian cabinet approved an austerity package that includes plans to raise taxes on banks and mining firms, but avoids controversial fuel and electricity price rises, to hold down the rise in the budget deficit, officials said yesterday.

They said the first package of measures, approved at a cabinet meeting late on Saturday, also included cuts in the government’s operational spending and a freeze on hiring, and were expected to produce savings of around 300 million dinars (US$423 million).

The state news agency Petra said the government would amend the income tax law to increase the taxes on profitable banks and on mining firms such as Arab Potash and Jordan Phosphate Mines Co, among the world’s leading producers of fertilizers.

Officials said privately that the next step would be a rise in electricity and premium gasoline prices, which the government said earlier this month was needed to stop the budget deficit from exceeding US$4 billion this year and further damaging the kingdom’s growth prospects.

Successive governments have adopted an expansionist fiscal policy characterized by sizable state subsidies and salary increases in response to months of protests that began early last year, inspired by the uprisings that swept the Arab world.

In the latest sign of popular discontent, Islamist and tribal opposition groups held street protests against rising prices on Friday.

To head off greater unrest, the authorities created new state jobs in an already bloated public sector, froze gasoline prices and maintained subsidies for bread.

Officials say the new measures were needed to get IMF approval for further financing by donors worried about the impact of extra social spending on Jordan’s fiscal and monetary stability.

Jordanian Finance Minister Suleiman al-Hafez was quoted last week as saying the planned price rises and higher taxes were crucial to avoid the budget deficit soaring to 2.03 billion dinars (US$2.8 billion) — after taking account of foreign aid that traditionally covers budget shortfalls.

The budget deficit could have reached a record 2.93 billion dinars if foreign aid fell and the new measures were not adopted, he said.

Last year the economy was kept afloat by a US$1.4 billion cash injection from Saudi Arabia, but officials say there was no pledge of support from Saudi Arabia this year, raising concerns about the budget.

This year’s budget had set a much lower deficit target of 1.027 billion dinars, 4.6 percent of GDP, after allowing for extra foreign aid and the streamlining of a subsidies package that costs over 2.3 billion dinars a year.

Officials say the government plans to impose a sales tax on a long list of luxury goods, and will not touch subsidies on bread for the poor and on cooking gas that a majority of the country’s 7 million low-income people depend on.

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