Salaries 53% of spending, expenditures up 38% from 2024
The government is searching for additional tax revenues “by hook or by crook” in its budget 2025 proposal. After multiplying fees 46 times in the 2024 budget, the Ministry of Finance decided to add 50 articles involving tax adjustments to increase revenues in the face of an expansion in spending that exceeds a third of what the 2024 budget was. It includes mainly imposing amounts in foreign currencies on transactions.
While the Ministry of Finance is committed to the legally specified dates for referral before the beginning of September, the government is expected to complete this process and refer the draft law to the parliament before November in preparation for its approval before the beginning of 2025, which is expected in an attempt to evade completing the closing of accounts.
Unlike the budgets of previous years, which were prepared at length by the Ministry of Finance and included more than a hundred articles, this proposal was succinct, as its articles did not exceed 49 articles, (a large portion of which were articles related to budget techniques, its issuance, the authorization of collection and spending).
The most notable violation of the 2025 budget is the ongoing failure to send the final accounts for the year 2023. The Public Accounting Law explicitly stipulates in Article 195 that the Ministry of Finance must submit the final accounts for the budget to Audit before August 15th.
The 2025 budget bill seen by NOWLEBANON sets government expenditures for the coming year at $4.779 billion, up 38% from the 2024 budget estimates projects revenues of $4.582 billion, up 33% from 2024, but still 63% lower than the 2019 budget bill. The deficit of revenues below expenditures will result in a deficit of $196 million, or 4.11% of total expenditures.
Salaries, wages and benefits constitute about 53% of spending, in addition to about 19% for operating spending on public facilities, and about 7.5% to cover debt interest. In contrast, it appears again that investment spending does not exceed 9% of spending
To be noted that proposed figure do not reflect the total and actual budget deficit, as it does not include other treasury expenditures and does not include all debts and arrears owed to contractors, hospitals, and the National Social Security Fund. Last year, the budget law recorded a “miracle” by being issued with a zero deficit, and while the repercussions of the sweeping crisis continue, the Ministry of Finance has not published the results of the budget since 2021, so that the deficit figures, collected revenues, and spent expenditures cannot be verified.
In any case the budget is “more of the same” as it continues to raise taxes and fees.
In 2024, proposed taxes figures were raised by about 33%, reaching some 796% since 2022. The largest share comes from indirect taxes, mainly the value-added tax and customs duties, which constitute an additional burden on residents’ income. While the draft budget proposes amending a set of administrative fees, the largest share of revenues is expected to be collected from the value-added tax, customs duties, and income taxes, which will constitute 57% of the total expected revenues.
The 2025 budget is expected to issue treasury bonds in local currency worth approximately $196 million (at the current exchange rate) to finance the deficit. Also to be noted increases in fees and taxes are not matched by any addition to investment expenditures, which do not constitute more than 9.8% of the total budget expenditures, knowing that 70% of them are road maintenance expenditures.
No additional spending was allocated for education, health, and the economy
Estimation of taxes
The state is estimated to collect revenues of $4.582 billion, of which 79.6% is tax revenues of $3.647 billion, and 20.4% is non-tax revenues of $935 million.
Moreover 66% of revenues will come from indirect taxes on consumption, knowing that 34% of total revenues are expected to be collected by the public treasury from the value-added tax alone. In contrast, direct taxes on income, profits and property will not constitute more than 17% of total revenues, while non-tax revenues will constitute about 17%.
Consumers will pay 82% of all these revenues in the form of value-added tax, fees on goods and services, customs duties, stamp duties, administrative transactions of all kinds, and prices for public services such as communications.
As for employers, companies and liberal professions, by paying taxes on profits and movable capital, they will contribute about 8.1% of the total treasury revenues. While depositors, owners and heirs will contribute about 7.6% of the total revenues through taxes on interest, built properties and transfer fees. As for workers, employees and retirees, they will pay about 2.1% of the total revenues in the form of taxes on wages and retirement deductions.
How does the state spend its revenues?
The government will spend about $2.54 billion to pay salaries, wages, social benefits, contributions to mutual funds, retirement pensions, end-of-service compensation, transportation, service and productivity allowances, an increase of about 50% over the 2024 budget, but still about 62% lower than in 2019. Salaries, wages and social benefits constitute about 53% of total budget expenditures, noting that the recorded increase is somewhat linked to the call-up of new elements to military service this year, as a state policy of social control, especially in communities that are unable to emigrate or find jobs in the private sector. In addition, about $219 million in emergency and exceptional expenditures (4.6% of total expenditures) are likely to be paid in the form of transportation and productivity allowances and aid during the year.
The government is expected to pay about $352 million (7.4% of total expenditures) on interest on local currency treasury bonds, an increase of 117% over what was paid in the 2024 budget. These amounts are a major source of profit for zombie banks that continue to operate through government support, which constitutes one of the reverse distribution tools, as well as from the commissions they deduct from the accounts registered with them.
Investment expenditures constitute about 9.8% of the total amount that the state will spend, amounting to about $468 million, noting that 70% of them are not new projects to stimulate the economy or build infrastructure for urgently needed public services such as transportation and electricity, but rather are merely road maintenance projects.
Consumer goods and services and transfers to public institutions value amounts to approximately $907 million and constitutes approximately 19% of total expenditures, and has increased by approximately 9% over what was allocated in the 2024 budget.
Allocation to cover social protection expenses, increased from $923 million to $1.3 billion compared to the 2024 budget law and the 2025 budget project, and constitutes about 26.4% of total public expenditures.
Military expenditures, including police services and military spending, accounts for 12% of total expenditures, amounting to $579 million, while education and health account for 8.5% and 8.9% respectively of total government expenditures, or $408 million and $427 million respectively, compared to $1.4 billion and $500 million in 2019, noting that the values allocated to health have decreased from what they were in the 2024 budget as well.
New taxes on salaries and wages
One of the most prominent new revenues the government is seeking to collect is calculating the tax due on salaries and wages paid partially or fully in foreign currencies in Lebanese pounds, but according to the exchange rate determined by the Central Bank of Lebanon, according to Article 17 of the budget.
Due to the economic crisis, the majority of institutions have changed their payment method for their employees and started using foreign currency to pay wages. In the 2024 budget, the government obliged employers to pay the amounts deducted from workers’ wages to the Treasury in the same currency in which the salaries and wages were paid.
The government is seeking to impose fees on “every receipt for the collection of public funds issued by the state, public institutions, municipalities, and their unions, as well as all public law entities.”
According to the proposed amendment, an amount of 100,000 Lebanese pounds will be charged for each receipt issued by the state in Lebanese pounds, 2 dollars for receipts issued in US dollars, and 2 euros for receipts issued in euros. Additionally, a fee of 100,000 Lebanese pounds will be added to bills issued by the Ministry of Communications for subscribers to phone and internet services.
On another note, the government has raised the value of the financial fee collected through stamp duty from 500,000 Lebanese pounds, according to Law 324 (the 2024 budget), to 2 million Lebanese pounds, as stated in Article 19 of the proposed tax amendments.
Stamping machines
The new amendments will mandate a broader use of stamping machines in ministries and official departments, allowing this method to be applied for any fee exceeding 2 million Lebanese pounds up to 3 billion Lebanese pounds. However, this government measure is expected to exacerbate the ongoing stamp shortage since 2020, as officials in public departments report, “The black market still controls the stamps, with a stamp worth 20,000 Lebanese pounds being sold at kiosks in front of educational departments for 200,000 Lebanese pounds, knowing that this stamp must be affixed to every official certificate issued by the ministry for students who participated in official exams.” In addition to stamping machines, the government aims to adopt the principle of paying financial fees exceeding 2 million Lebanese pounds through other means, including bank checks, cash payments at notaries, or through receipts issued by financial departments
The new amendments will mandate a broader use of stamping machines in ministries and official departments, allowing this method to be used for any fee exceeding 2 million Lebanese pounds up to 3 billion Lebanese pounds.
Lack of tax reforms
The proposal lacks any reforms for public employees, whether in terms of their salaries, employment status or retirement. The failure to approach the issue or to allocate funds for any improvement in wages, reflects the intention to keep the miserable conditions in the civil service and for retirees as it is.
Unlike previous budgets, the budget did not include any provisions that would amend tax brackets, impose new taxes, or allow for the possibility of paying taxes in installments, making settlements, or exempting them.
To be also noted that direct taxes on income, profits and property do not exceed 17% of total revenues, and that 66% of revenues will come from indirect taxes on consumption which raises a red flag on inflation hike.
Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy.
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW.
