Saudi Arabia yesterday unveiled plans to triple its value added tax (VAT) and halt monthly handouts to citizens as part of a series of austerity measures amid record low oil prices and a coronavirus-led economic slump.
The measures, which state media said would boost state coffers by 100 billion riyals (US$26.62 billion), come as the government steps up emergency plans to slash spending to deal with the twin economic blow.
The austerity drive could stir public resentment amid an already high cost of living and intensify scrutiny of lavish multibillion US dollar state projects and expenditure including the proposed purchase of English soccer club Newcastle United.
“It has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 percent to 15 percent from July 1,” Saudi Minister of Finance Mohammed al-Jadaan said in a statement released by the official Saudi Press Agency.
Al-Jadaan said that the measures were necessary to shore up state finances amid a “sharp decline” in oil revenue as the COVID-19 pandemic saps global demand for crude.
The government was also “canceling, extending or postponing” expenditure for some government agencies and cutting spending on projects introduced as part of the ambitious “Vision 2030” reform program to diversify the oil-reliant economy, he added.
The minister last week warned of “painful” and “drastic” steps to deal with the double shock of the novel coronavirus and record low oil prices.
Saudi Arabia, the top crude exporter and the Arab world’s biggest economy, has shut down cinemas and restaurants, halted flights and suspended the year-round umrah pilgrimage to contain the virus.
However, the savings from the austerity measures are unlikely to plug the kingdom’s huge budget deficit, which Jadwa Investment said would rise to a record US$112 billion this year.
Riyadh has posted a budget deficit every year since the last oil price rout in 2014.
The IMF last month projected that the Saudi Arabian economy would contract by 2.3 percent this year.
Al-Jadaan has said that he expected Riyadh could lose half of its oil income, which contributes about 70 percent of public revenues, as oil prices have fallen two-thirds since the start of the year.
He said that the nation would borrow close to US$60 billion this year to plug the budget deficit.
Crown Prince Mohammad bin Salman’s other ambitious plans to wean the economy away from oil remain vulnerable to austerity measures.
It remains unclear whether the prince’s dream project NEOM — a US$500 billion megacity to be built from scratch along the kingdom’s picturesque western coast — would be affected.
The plans hit a new roadblock last month when a member of the local Huwaitat tribe was gunned down by state forces after he refused to give up his land for the project.
Campaigners said that many other members of the Bedouin tribe were detained for spreading anti-displacement slogans and refusing to sign relocation documents, in a rare domestic clash with the government that has a reputation for crushing dissent.
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