Bloomberg News

Lebanon’s Government Boosts Taxes, Spending in 2012 Budget

October 04, 2011

Oct. 4 (Bloomberg) -- Lebanon’s Finance Ministry said next year’s budget will increase value-added tax and income from financial and real-estate investments and boost current expenditures by 13 percent.

The budget forecasts a fiscal deficit of 8.1 percent of gross domestic product for 2012, down from a projected 9.4 percent this year, the ministry said in an e-mailed statement from Beirut today. VAT will rise to 12 percent from 10 percent, and taxes on interest from bank deposits to 8 percent from 5 percent, the ministry said. It will also introduce a capital- gains tax of 3 percent on real estate sales.

The budget is a revision of a draft issued in May by the previous government. It retains that plan’s 4 percent economic growth rate forecast for next year. The International Monetary Fund expects Lebanon’s economy to grow 1.5 percent this year, the slowest since 2006, accelerating to 3.5 percent in 2012. The economy has been hit by the domestic political tensions that toppled former Prime Minister Saad Hariri’s administration in January, and political unrest in neighboring Syria.

“The tax increases come at a very inopportune time,” said Nassib Ghobril, chief economist at Beirut-based Byblos Bank SAL. “The rise in VAT will slow down consumption in an already subdued economic environment, which will negatively impact tax revenues, while the rise in the tax on interest deposits will hurt those who rely on this source of income for their spending, such as retirees.”

The budget, which needs to be approved by the Cabinet before it is debated and voted on by parliament, estimates inflation at 5 percent next year.

Lebanon’s public debt reached about $52.6 billion at the end of last year, equivalent to about 137 percent of gross domestic product. The budget forecasts it to drop to 135 percent at the end of this year and 132 percent in 2012. The country ran up debt on rebuilding after the 15-year civil war that ended in 1990 and an Israeli bombing campaign in 2006.

--Editors: Ben Holland, Heather Langan.

To contact the reporter on this story: Massoud A. Derhally in Beirut, Lebanon, at mderhally@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net


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