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Lebanon's 2024 Budget: A lose-lose situation for people

Wassim Maktabi,
Sami Atallah,
Sami Zoughaib

The 2024 budget draft is set to be the first in two decades to be ratified within the constitutional deadlines. After receiving the draft in September 2023, the parliament’s Finance and Budget committee finally reviewed it and slated it to the general assembly for approval on January 24-25, 2024. The committee, over the span of three months, made significant modifications: it removed 46 articles, amended 73, and added eight and, consequently, flipped the fiscal deficit to a surplus by considerably increasing the estimation from regressive taxes. Yet if parliament fails to ratify the budget before January 31, the version submitted by the cabinet, which also lacks reforms and deviates from standard public financial management practices,1 will be placed into effect through a decree.2 In short, Lebanon is in a familiar conundrum of being caught between a rock and a hard place: Both budget drafts do not serve the people, yet one will be adopted. Below are the main changes made by the parliamentary committee.

Parliament’s Finance and Budget committee increases regressive taxes and decreases progressive ones

The current budget draft sizes revenues from domestic taxes on goods at $1.6 billion, which is 20% higher than the cabinet’s version, and revenues from customs at $360 million, which is more than twofold higher. Together, indirect taxes are set to make up an astounding 77% of tax revenues, up from 55% in 2019, and even higher than the cabinet’s version of 67%. In parallel, parliament’s Finance and Budget committee decreased revenue projections from taxes on income and capital gains by more than one-third, from $380 million to $240 million. This signals a predatory approach to generating revenue by opting for regressive instruments that disproportionately burden middle and lower-income households compared to affluent ones.

The parliamentary committee deprives the state of revenues by exempting large businesses

The 2024 budget draft law plans to exempt the business class from taxes and fees which deprives the state of revenues. For one, it unnecessarily exempts businesses from taxes on profits generated from reevaluated fixed assets. Two, the budget is proposing to reduce capital gains tax on profits made as a result of real-estate investments, including large real-estate companies, from 15% to 1% till the end of 2026. Given that many Lebanese citizens have large capital holdings in foreign economies, the budget is yet to enforce the collection of taxes in incomes and profits resulting from those assets. Furthermore, the reduction of penalties on tax evaders has become a perverse incentive for not paying taxes on time.   Not only do the committee’s amendments privilege large businesses, but they also burden smaller ones by lowering the VAT threshold by half, to the equivalent of an annual turnover of $33,700, down from $67,000 in the pre-crisis era.

Lebanon’s service ministries still do not have the means to address the social crisis

Parliament’s Finance and Budget committee reshuffled expenditure lines to increase the allocations for service ministries by one-fourth (reaching $747 million) compared to the cabinet’s draft, yet they only make up 40% of their 2019 pre-crisis level.3 For the main service ministries—Education and Higher Education (MEHE), Public Health (MoPH), and Social Affairs (MoSA)—the recovery rate to pre-crisis size has been asymmetrical, with MoPH surpassing its 2019 allocation by 9%, while MoSA and MEHE fall behind by 67% and 82% respectively. Given the sharp increase in vulnerable households today compared to five years ago, the state is severely lacking in financial capacity to provide adequate social provisions. 

The 2024 budget lacks adequate social insurance provisions

The 2024 budget draft proposes the payment of worker’s end-of-service indemnities earned before 2024 at the official exchange rate of USD/LBP 15,000, which represents roughly 17% of their actual value. This severely hurts wage earners and exposes people in retirement age to acute vulnerabilities. In parallel, the Finance and Budget committee reallocated around $834,000 as contributions to the National Social Security Fund—Lebanon’s main social security provider to the private sector—which is nearly 10 times larger than the allocations set in the cabinet’s draft budget, yet only represents one-fourth of their size in 2019.4

Parliament’s Finance and Budget committee reduces the oversized budget reserve

The budget reserve in the recent version of the draft law makes up 9% of the total budget, which is still higher than conventional practice of 2 to 3% yet is $581 million less compared to the cabinet’s version of 27%. Most of these were channeled to the budget lines of the Ministry of Energy and Water (+$109 million), MoPH (+$100 million), the Ministry of Defense (+$95 million), and for joint expenditures (+$147 million).5

Parliament’s Finance and Budget committee cosmetically changes the fiscal deficit to a surplus

Turning the public deficit into a surplus by the committee members is not a feat as they claim it to be. For one, donor assistance, which is essential for government's operation particularly to the defense and education sectors, is not featured in the budget. Moreover, a significant portion of public spending is off budget mainly through treasury advances,6 which renders the fiscal balance futile.

The 2024 budget was prepared atypically fast but typically bad

Neither the Ministry of Finance nor the Finance and Budget committee were interested in setting up a consultative approach in preparing and debating the budget. In fact, the latter opened its door to the business associations which were keen to push for measures that exempt them from taxes and deprive the treasury of revenues.  In the absence of an economic vision or reforms, they turned the budget into a vehicle that serves the interests of the few, while gloating over the illusion of completing a national budget on time for the first time in two decades.

In brief, the budget disproportionately taxes middle- and lower-income households, devalues their end of service indemnity, underfunds service ministries, and provides a list of exemptions to narrow interest groups.

1. Maktabi, W., S. Atallah, and S. Zoughaib. January 2024. “Lebanon’s 2024 Draft Budget: Blindly curbing the fiscal deficit.” The Policy Initiative.

2. Article 86 of the Lebanese Constitution.

3. Service ministries include the following: Ministry of Public Health, Ministry of Education and Higher Education, Ministry of Social Affairs, Ministry of Displaced, Ministry of Culture, and Ministry of Youth and Sports.

4. Almost all (99%) of the state’s contributions to the NSSF are allocated to the family allowance branch.

5. Joint expenditures comprise mostly end-of-service indemnity and retirement salaries.

6. Financially Wise. 2022. “Off-budget spending: A risky business for Lebanon.”; Maktabi, W., S. Zoughaib, and S. Atallah. 2023. “Lebanon’s Public Financial Mismanagement.” Konrad Adenauer Stiftung, Aldic, and The Policy Initiative.

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