Lebanon’s 2026 budget arrives under the banner of a new presidency and cabinet, framed as the first fiscal test of a post-war political era. It follows the devastation of the 2023–2024 Israeli war on Lebanon and comes six years after the financial collapse, sovereign default, and banking implosion that redefined the state’s economic foundations. Politically, the government has portrayed the budget as evidence of reformist intent: it was submitted on time to the Council of Ministers—meeting constitutional deadlines—and is officially presented as balanced. At $5.68 billion, it records a 14 percent increase from 2025, with higher allocations to social services, improved spending on public sector personnel and their social protection, and a 38 percent cut in reserves that, on the surface, suggest improved discipline.

Yet beneath this procedural order lies a familiar fiscal logic. The 2026 budget relies on the same architecture that once sustained the financial crisis: a regressive tax system that leans on consumption and wages while shielding capital and property; and a spending structure dominated by personnel costs and political discretion. Even reforms to reserves, though positive in appearance, remain embedded in a broader pattern of accounting adjustments rather than strategic reprioritization.

This continuity is not technical—it is political. The budget reveals a state that manages scarcity through compliance and containment instead of redistribution and renewal. Large discrepancies between draft versions, unaccompanied by policy shifts or macroeconomic justification, point to calibration more than reform. Balanced on paper but hollow in substance, the 2026 budget preserves the state’s procedural façade while leaving its social and developmental purpose unresolved. For reform to take place, the government needs to confront political and economic interest groups. In this budget, it chose not to do so but instead, keep the system largely intact.

A Regressive Recovery: Rising Revenues, Unchanged Priorities

The 2026 budget anticipates a notable rise in revenues—about $1 billion more than the previous year—but the pattern of this increase reveals more continuity than change. Most of the gains come from consumption and wage taxation, while collections from profits, assets, and public enterprises remain limited. The structure therefore reinforces long-standing imbalances in Lebanon’s fiscal system: a narrow base, weak progressivity, and limited returns from state-owned assets. Taken together, these trends suggest a revenue framework that stabilizes the budget in the short term but falls short of restoring fiscal fairness or resilience.

Tax Revenues: Growth Without Progressivity

Revenues are projected to reach $6.018 billion, driven mainly by an increase of $439 million from VAT, $131 million from taxes on wages and salaries, $131 million in non-tax revenues, $111 million in real estate/registration fees, $92 million from the monopoly administrations profits, and $48 million in excise taxes. On paper, this composition suggests a broad-based recovery. In practice, it reflects an expansion in existing channels rather than the emergence of new, more equitable sources of revenue.

Within income taxes, the distribution of growth is particularly uneven. Taxes on income are projected to rise by $163 million, driven almost entirely by a $131 million surge in taxes on salaries (138 percent). Ordinarily, such a sharp increase would signal strong economic growth translating into higher wages or improved collection through stricter enforcement and greater compliance. Yet the budget names no policy changes that would plausibly produce such a rise: projected GDP growth of about 4% in 2026 (World Bank 2024¹) is insufficient to explain a surge of this size in wage taxation. Furthermore, continued de-formalization and widening compliance gaps—rooted in limited enforcement capacity and strong underreporting incentives, and aggravated by unresolved NSSF End-of-Service liabilities—make it unlikely that higher wage-tax receipts reflect durable improvements in compliance.

The rest of the income-tax structure tells a similar story of uneven and questionable estimations. Taxes on profits edge up only by 12 percent (+$39 million), while taxes on movable assets fall by 30 percent (–$13 million). The latter—estimated at only about 14 percent of their 2018 value—is partly explained by the continued dominance of cash transactions since the banking collapse, which has reduced traceability and made capital income more difficult to capture. However, the divergence between these categories raises broader concerns: if the economy were genuinely recovering, then taxes on wages, profits, and assets would likely move in parallel, not in opposite directions.

The government’s own figures confirm the asymmetry. The projected 138 percent rise in salary-tax revenues would bring them to roughly 44 percent of their 2018 level, compared with 37 percent for profit taxes. Given that the overall economy now stands at about 36 percent of its 2018 size, the trajectory of profit taxation broadly tracks the macroeconomic contraction, while wage-based taxation rises above it. This suggests that employees—particularly those in formal and middle-income brackets—are contributing proportionally more to fiscal adjustment than business and capital income. While profits still generate larger absolute sums, the pace of recovery shifts the relative burden toward labor, with limited progress on equity or redistribution.

More broadly, the tax structure remains highly regressive. In fiscal terms, this means that most revenues come from taxes applied uniformly—such as VAT, customs duties, and registration fees—rather than from instruments calibrated to income or wealth. Because these taxes take up a larger share of lower and middle incomes, they weigh more heavily on those least able to afford them.  While indirect levies are projected to rise by $700 million (a 20 percent increase, from $3.5 billion to $4.2 billion), progressive taxes on income and property are expected to increase by $133 million (a 25 percent rise, from $526 million to $659 million). Yet because their base is so much smaller, this faster growth has little effect on the overall structure: regressive taxes still account for 86 percent of total tax revenues, unchanged from 2025. The continuity is not only in proportions but in design, with major bases still outside the net. Here we refer specifically to maritime property: while the budget records about $35 million from regularizing encroachments on the maritime public domain, those are fees for violations and one-off settlements, not a recurring maritime property tax. In other words, even if property taxes exist elsewhere in the system, maritime property remains effectively untaxed—leaving a politically sensitive but central test of equity and credibility unaddressed. Moreover, crushers and sand quarries face no sector-specific levies, and luxury goods carry no targeted excise beyond standard VAT.

Even customs revenue, a traditional pillar of public revenues, shows limited improvement. Despite a $62 million increase from 2025, effective rates remain low—around 3 percent if import volumes are similar to 2024—suggesting that leakage and under-collection persist. With an import bill of around $15 billion, custom revenues should be around $1.5 billion (10 percent of the import bill) compared to the projected $562 million, one third of what it should be. The pattern illustrates how institutional weaknesses, rather than macroeconomic conditions, continue to shape fiscal outcomes.

Taken together, these dynamics reveal a tax system that is not only regressive but also inefficient. The burden of adjustment continues to fall on consumption and wages, while the instruments capable of redistributing wealth or capturing rent remain underdeveloped or unenforced. The direction has therefore not changed: inequality is being reproduced through fiscal means, even as absolute revenues grow.

Non-Tax Revenues: Underused Public Assets

Beyond taxation, the state’s own revenue sources remain weak and underutilized. Public enterprises in telecoms, electricity, ports, and gaming together generate just over $1 billion—around 17 percent of total revenues—well below the international average of roughly 35 percent. This gap reflects deep structural problems: outdated business models, limited operational autonomy, opaque accounting, and political interference that prioritize patronage over performance. The result is a public asset base that yields little fiscal return and contributes minimally to economic productivity.

Because these enterprises fail to generate steady income, fiscal adjustment continues to rely on taxation. This dependence makes public finances both fragile and inequitable: fragile because revenues fluctuate with consumption and import levels, and inequitable because the tax mix leans heavily on regressive instruments that burden low- and middle-income groups. Meanwhile, weak digital tracking, widespread informality, and discretionary enforcement perpetuate high levels of evasion and revenue leakage.

Expenditure Priorities: Incremental Gains, Structural Constraints

On the spending side, the 2026 budget shows selective increases but little evidence of reorientation. Some social and service sectors see modest gains, yet the overall composition of expenditure remains largely unchanged. Health, education, and social protection allocations rise, but without a broader reprioritization or reform framework, these additions operate more as compensatory adjustments than as structural commitments.

Expenditure Priorities: Modest Social Gains Within an Unchanged Structure

Allocations for social services reach about $688 million, or roughly 11 percent of total spending. The largest increases include $31 million for direct health services—covering hospitalizations, medicines, and support to public hospitals—$21 million for public education programs, and $51 million for social protection under the Ministry of Social Affairs. These adjustments suggest an effort to preserve essential functions in an environment of fiscal constraint, but the scale remains modest compared with the depth of social needs and the cumulative erosion of service quality since the crisis. Yet, they are undermined by the very regressive tax policies in the same budget.

Capital and Security Spending: Incremental Increases Without Strategic Direction

Capital expenditure tells a similar story of limited ambition. The total allocation increases by $61 million, reaching $630 million, but no explicit line is dedicated to post-war reconstruction. This is striking given estimated physical damage exceeding $6.8 billion, including $4.6 billion in housing alone (World Bank, 2025).² Instead, reconstruction-related spending is folded into broader capital items, such as $517 million for ongoing projects and maintenance, $25 million for the Council of the South (of which only $4.7 million is earmarked for infrastructure works), and a symbolic $225,000 for the Higher Relief Council to address any potential Israeli aggressions. These figures contrast sharply with the government’s public rhetoric that placed reconstruction at the center of its policy agenda.

Security expenditures also remain heavily weighted toward personnel. The army’s budget rises from $808 million to $966 million, but nearly all of this increase is absorbed by wages and allowances; capital spending increases by just $1 million. The pattern illustrates a broader fiscal constraint: rising current expenditures to maintain institutional stability, but limited investment in capabilities or modernization.

Personnel and Compensation: A Growing Wage Bill Anchored in Precarity

Personnel costs continue to dominate the budget, absorbing around 60 percent of total expenditure—approximately $3.59 billion in 2026—including salaries and wages, allowances, contributions, and social benefits. On the surface, this represents continuity with 2025, but the composition of spending reveals deeper structural pressures. Within this envelope, total salaries—covering base pay, allowances, and contributions—rise to about $1.49 billion, an increase of $405 million (around 37 percent) from the previous year. The increase is driven largely by the expansion of contractual employment and associated employer contributions: salaries for contractual workers grow from $53 million to roughly $196 million, while employer contributions add around $252 million. By contrast, salaries for permanent civil servants remain almost unchanged at $331 million. This growing reliance on contractual workers may help sustain minimal operational capacity in the short term, but it also deepens the state’s dependence on precarious labor arrangements—exposing the system to politically mediated hiring, weakening pay predictability, and complicating long-term workforce planning within the permanent cadre.

Equally concerning is the imbalance between base pay and supplementary allowances. Of the total allocated to salaries, only about 38 percent corresponds to basic pay, while the remainder consists of allowances and contributions. These supplements, introduced as temporary relief against inflation, now outweigh permanent salaries themselves. While they provide short-term income support, their structure reduces the pensionable base and erodes future end-of-service benefits, thereby weakening both employee security and fiscal sustainability. Over time, this reliance on non-pensionable pay risks institutionalizing a fragmented and unstable compensation system that undermines morale and efficiency across the public administration.

Social Benefits and Pensions: Selective Relief Amid Deepening Inequities

Social benefits rise from $1.32 billion in 2025 to $1.66 billion in 2026—about a 25 percent increase—but the headline figure masks deeper structural gaps. Retirees’ salaries expand sharply from $281 million to $846.9 million, a 201 percent rise that partly restores entitlements eroded by years of crisis. Yet the total remains below the $1.9 billion spent in 2019 and falls short of providing adequate and equitable retirement income. The increase offers short-term relief but, being largely driven by temporary allowances, highlights the absence of a coherent and sustainable pension reform.

Another pressing challenge lies within private sector retirees and remains unaddressed. The National Social Security Fund’s End-of-Service Indemnity scheme’s liabilities have surged following the revaluation of provisions from the pre-crisis exchange rate of 1,500 LBP to 89,500 LBP. The adjustment has effectively shifted the burden onto private employers, prompting widespread underreporting and de-formalization. Since most of the Fund’s reserves were invested in government debt, part of this liability should be recognized as a public obligation. Yet the 2026 budget includes no allocation for this purpose and introduces no new support for retirees outside the public sector—such as a universal basic pension that could extend protection to all older persons.

In this context, the selective increases for civil service retirees and the absence of measures to address NSSF liabilities or universal coverage deepen inequality within the social protection system. While benefits for active employees remain largely unchanged—minor variations in family allowances, sickness payments, and mutual fund contributions—the overall structure continues to privilege narrow categories of workers over broader social equity. The budget thus reinforces a fragmented welfare architecture, one that provides relief to some while leaving systemic vulnerabilities unaddressed.

Reserves and Debt: Improved Discipline, Persistent Opacity

A more encouraging trend appears in the treatment of budget reserves. Their share of total expenditure declines from 13 percent in 2025 to about 5 percent in 2026—a shift toward greater discipline and transparency. The total reserve envelope now stands at roughly $324 million, including $11 million for wages, $94 million for social benefits, and $219 million for exceptional expenditures.

While this remains above the good-practice range of 1–3 percent, the reduction narrows the scope for discretionary reallocations and strengthens parliamentary oversight. The change reflects a move away from the opaque budgeting practices that previously allowed large unclassified reserves to substitute for policy planning, marking a small but tangible improvement in fiscal governance.

Despite these procedural gains, the government’s claim of a “zero-deficit” budget remains misleading. Debt service is recorded at $291 million, but this figure excludes obligations on Treasury bills and Eurobonds suspended since the 2020 default. These liabilities remain outstanding and will ultimately require a comprehensive restructuring plan to restore credibility to public accounts. Without such a plan, the apparent balance achieved on paper masks the persistence of hidden debt and deferred payments.

Moreover, a significant share of expenditure—particularly in defense and reconstruction—is financed directly by external partners and thus excluded from the official fiscal framework. These off-budget operations distort the true size of public spending and weaken the transparency of state–donor relations. As a result, the 2026 budget presents a narrower and more favorable fiscal position than the reality suggests, meeting formal balance targets but without addressing underlying solvency risks.

Budget Credibility: Procedural Order Without Substantive Reform

The sharp revisions between the budget draft submitted to the Council of Ministers and the version sent to Parliament raise concerns about the reliability of fiscal data and the transparency of decision-making. On the revenue side, the tax on profits increased from $133 million in the first draft to $366 million in the second—a surge of $232 million—while the tax on movable assets rose from $7 million to $30 million, an increase of 316 percent. Such abrupt changes, absent any new policy measures or macroeconomic assumptions, suggest recalibration rather than improved estimation.

Expenditure revisions follow a similar pattern. The general reserve was reduced from 9.2 percent of total spending in Draft 1 to 5.4 percent in Draft 2, with the released funds reallocated mainly to compensation of employees (+$236 million) and pensions (+$213.5 million). This adjustment improves the legibility of the budget by shifting resources from a broad reserve into specific line items, thereby reducing the scope for opaque, discretionary reallocations.

In aggregate, however, the difference between the two drafts amounts to roughly $860 million—around 15 percent of total expenditure. Changes of this scale over a short period point to weak estimation practices and limited coordination in fiscal preparation. Volatility of this kind undermines medium-term planning, complicates enforcement, and erodes public confidence in the integrity of fiscal data and the credibility of the budget process.

Conclusion: Procedural Balance Without Fiscal Renewal

In formal terms, the 2026 budget meets the procedural test: it was submitted on time, appears nominally balanced, and reduces the share of reserves. Yet it still falls short of a substantive reset. The tax mix remains regressive, state assets continue to underperform, the wage bill relies on allowances rather than predictable pay, reconstruction outlays are token, and the declared “zero deficit” excludes both suspended debt service and off-budget donor spending. Sharp swings between the first and second drafts further erode confidence in data quality and the transparency of fiscal management.

A credible course correction will require deliberate choices. Progressive taxation must be expanded while protecting essential consumption; public employment and compensation need structural reform; and a multi-year, audited reconstruction plan should replace fragmented project lines. Reserve use must be capped and transparently reported, donor-financed operations brought on budget, and fiscal balance claims anchored in a credible debt-restructuring roadmap. Above all, spending priorities must shift toward measurable improvements in health, education, and social protection—areas where citizens can tangibly experience the state at work.

In sum, the 2026 budget does not mark a break from old fiscal habits that largely preserve the status quo. Unless the government chooses to confront entrenched political and economic interests and redefine the purpose of fiscal policy, Lebanon will remain caught in a pattern of procedural order without substantive progress— seemingly balancing its books while l while deepening social and economic inequities.