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AMMAN — The COVID-19 pandemic forced the Jordanian government to implement a myriad of monetary and fiscal policy measures to contain not only the human, but also the economic implications of the virus, the Jordan Strategy Forum (JSF) said on Wednesday.
These measures will press hard Jordan’s public finance. Indeed, two challenges have emerged: First, as public spending increases and local revenues decrease, the budget deficit will widen, and second, as public borrowing increases, public debt will rise, the JSF said in a policy paper titled “Fiscal Policy in Jordan: Towards a New Approach”.
Within the context of the socio-economic implications of COVID-19, one should remember that “the Jordanian economy has been wrestling with a multitude of challenges”, years before the outbreak of the virus, the forum said.
These challenges include modest economic growth rates, consistently high unemployment rates, especially among the young and university graduates, persistent budget deficits, and rising public debt. COVID-19 will bring nothing new, but further exacerbation of these challenges, the policy paper said.
Any economy is nothing but a collection of consumers and firms interacting with each other to determine what goods and services to produce, and at what prices, the JSF paper said
Within this context, it is useful to note that even in “predominantly market economies”, such as the UK, the US, Germany, and many others, governments play a dominant role in economic activity.
Governments raise revenues (tax and non-tax) and spend on public goods and services such as healthcare, education, transport, and others. In other words, through their fiscal policies, such governments are major players in economic activity.
For so long, the Jordanian economy has been realizing modest growth rates, according to the JSF.
During the past few years (2015 – 2019), almost all economic sectors grew at positive rates. On average, the standard deviations of these growth rates are relatively low. In other words, these sectors’ annual growth rates were stable.
During the period 2016 – 2018, the total number of net created jobs, according to figures by the Department of Statistics, was equal to 47,909, including 42,963 jobs for Jordanians.
The public sector, which involves government spending, revenue raising and borrowing, has a crucial role to play in any economy. What is less clear, however, is the fact that the public spending side of fiscal policy, for several reasons, must increase over time, the policy paper said.
The relationship between taxes and economic growth is a complex one, and depending on their economic structures, spending mechanisms, and nature of taxpayers, this relationship differs from one country to another.
The debate over the subject matter of tax, and its burden, will go on in Jordan. However, in many cases, it can be stated that adjustments in the tax law tend to target those who are compliant, especially in their income taxes, according to the policy paper.
Indeed, and in addition to the informal sector, which operates outside the tax law altogether, a quick look at the number of taxpayers and their development during recent years indicates that this is the case. Moreover, while sales tax is the major component of total tax revenues, it is known for being regressive, reliable source of revenue, and not easy to dispense with, the JSF said.
Any new tax narrative should be related to the relationship between taxes and public spending on the one hand, and between taxes and economic growth on the other. In addition, such a relationship should also consider the optimal tax rates. Indeed, the philosophy of taxes should be based on its role in income distribution, employment creation, and the realisation of growth, the policy paper said.
To focus on just tax collection, while ignoring the efficiency of public spending makes the debate on fiscal policy irrelevant, and fragmented. It is important to focus on a number of fiscal policy dimensions that constitute a basic road map for the new narrative, the JSF said.
