Reducing taxes, reliance on loans: Economists weigh in on 2023 budget

AMMAN — A notable increase in the real growth rate demands reducing the government’s reliance on loans and mitigating the taxation burden on the economy, according to experts. 

During a press conference last week announcing the details of the draft general budget for 2023, which stands at JD11.432 billion, Finance Minister Mohamad Al-Ississ noted that the projected “real growth” rate for the year 2023 will stand at 2.7 per cent. 

In an interview with The Jordan Times, Mohammad Al Basheer, an economist, noted that a budget reflects the government’s plans on what it can do during the year to stimulate the economy, aside from its commitments to salaries, wages, departmental needs and interest on debts. 

He added that the government’s financial policies, which include a high taxation burden on various sectors and increasing production costs, will hinder its plans to achieve economic growth. 

“Despite the increase in tax revenues, which is expected to reach 11.4 per cent in 2023 due to combating tax and customs evasion, the fact that taxes make up over 70 per cent of the domestic gross revenue is a major issue,” he said. 

“Stimulating the economy can only be achieved by reducing costs”, which include the sales tax on agricultural and industrial production inputs, the high sales taxes on energy sources and the interest rate, which “continues to increase, leading to higher personal and corporate debt”, Basheer said. 

He also pointed out that the high taxes on production inputs reduce productivity and increase reliance on imports.

“These factors prevent us from reaching the levels of economic growth and recovery we aspire to,” Basheer added. 

He also noted that attracting investments requires “serious expenditures” on infrastructure in the health, education and transportation sectors. 

“The budget’s allocations for these three sectors are very humble and they fail to satisfy public needs and ambitions,” said Basheer. 

A governmental study issued in 2018 showed that the taxation burden in the Kingdom is over 26 per cent of its gross domestic product, which has a “crippling impact on the economy, preventing its growth and advancement,” according to Basheer. 

Economist Hosam Ayesh also noted that the 2023 budget shows that a large percentage of public revenues come from taxes. 

In 2023, domestic revenues will increase by 10.4 per cent, reaching JD8.8 billion, and tax revenues will reach JD6.6 billion, according to Al-Ississ. 

Moreover, Ayesh said that the new projects in all yearly budgets have the lowest amount of allocations among capital expenditures.

In the 2023 Budget Project, only 16 per cent, or JD256 million in capital expenditures are for new projects, “which doesn’t leave much room for economic growth”, he told The Jordan Times.

Also, allocating around 16 per cent of current expenditures to debt interest leads to reduced spending on development, said Ayesh. 

“Most interest allocations are covered by domestic revenues, which mostly come from taxes that place high burdens on Jordan’s people and various economic sectors. This reduces investments and prevents an increase in the real growth rate, which stands at 2.7 per cent,” he continued. 

Zayyan Zawaneh, a political economy specialist, said that closing the deficit, which is expected to be around JD2.6 billion before grants and 1.826 billion after grants in 2023, will lead to more debt. 

“The public debt is expected to reach around JD 41 billion by the end of 2023, which, without question, places a huge burden on Jordan’s economy,” he told The Jordan Times. 

Ayesh pointed out that the debt interest, which is JD1.6 billion, equals the budget’s capital expenditures. 

He also noted that the allocations of JD355 million for the Economic Modernisation Vision, JD40 million for the administrative reform plan and JD11.4 billion for capital expenditures are below what’s needed. 

Zawaneh said that “the Economic Modernisation Vision is in fact a vision”, while the 2023 budget is a financial plan that reflects the government’s ability to meet its responsibilities and commitments. 

“The 2023 budget merely facilitates the flow of the government’s usual work, without the potential for projects that can lead to a notable economic revival or address pressing issues such as unemployment,” he added.