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Towards financial self-sufficiency
Feb 12,2017 - Last updated at Feb 12,2017
At this time, when external grants receivable by the Treasury, whether Arab or foreign, are on the decline, Jordan may have no choice but to adopt a policy of financial self-sufficiency, accompanied by all the suffering that may go with such an adjustment.
Self-sufficiency is nice and acceptable as a slogan. No one would object to the concept, but in practice, it means that people would be required to finance the budget by paying more fees and taxes, and what goes with them in terms of higher prices and lower standards of living.
In this respect, one has to admit that Jordan’s budget is inflated. It takes around one third of the gross domestic product.
In other words, the budget in its present shape exceeds the size of the economy and the capacity of the citizens to pay more direct and indirect taxes.
Hence, self-sufficiency must go in both directions simultaneously: a reasonable increase in taxation and a substantial decrease in expenditure.
This will mean an austerity that can be painful indeed. Furthermore, it does not help economic growth.
The public sector has grown in size beyond the ability of the economy to support.
Surgical action would be needed to reduce the size of the public sector, which must be painful.
The public sector reform must therefore be conducted not only carefully, but also gradually to minimise the pain.
Sometimes, it seems that things are going in the opposite direction. We hear about demands to raise salaries of certain categories of government personnel, raise minimum wages and have more tax exemptions and exceptions, improving the standard of living of the poor and the middle class.
Some populists are exerting efforts to find ways and means to increase public expenditure and worsen deficit of the budget as long as that may enhance their popularity.
Subsidies of all kinds cost around JD650 million a year. Part of these may be justified, but another part is waste of money. They go to those who do not need, nor deserve, it.
Apparently, no government dares touch such subsides or reform them.
Contrary to the general impression, we are told that the tax level in Jordan is lower than in countries at a similar stage of economic development.
Suffice it to say that the present Income Tax Law exempts every family that has an annual income of JD24,000 to JD28,000 from paying this tax.
Many tax payers try, and succeed, in evading tax whenever possible, especially when it comes to free lancers whose actual income cannot be identified by the tax man, especially professionals such as doctors, lawyers, traders and others.
Jordan is now going through an unprecedented state of economic challenges that call for major reforms.
It may be necessary to review the present economic reform programme agreed upon with the IMF in order to push for stronger measures, to face the current circumstances and make some sacrifices for grand objectives.
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