Saturday, April 15, 2006

The King's message

King Abdullah sent a letter to the prime minister last Thursday, on the occasion of the raising of fuel prices. The King thanked the Jordanian people on the understanding they have shown in dealing with this blow. The letter also outlined three priorities which he feels to government should deal with to enhance social justice and economic well being.

The first priority is a more equitable tax system. Specific goals were given. These were making the wealthy carry a higher load of the tax burden, stopping tax evasion and increasing the efficiency of tax collection and at the same time not harm investment.

The previous government passed an income tax law under the guise of tax reform. The reform actually lowered taxes on the rich and increased taxes on the middle class. After going through a lively constitutional process, the law was overturned. In the end, the current prime minister vowed to prepare a new law which would be more equitable. It remains to be seen whether this law will target the middle class again or not. However, many people are more concerned with the issue of tax evasion. The current system allows exact taxation of employees, whose income can be determined simply by looking at their pay slips. Many self employed business people make much more money, but of course can and many do underreport their incomes. This issue is troubling, and most people are skeptical that wealthy merchants and other business people can be made to pay what they owe. In other countries, tax evaders run the risk of being sent to jail. This is not the case in Jordan. So, any real tax reform should concentrate not just on mathematical studies of income distribution, but on actually having the legal tools and the political will to enforce a fair tax code. To be honest, I am skeptical about this.

It is true that high taxes are a disincentive to investment. This is a tricky issue, but I would say that not all types of investment deserve tax incentives. Banks, most real estate projects and shopping malls are lucrative enough to attract investors even if they are taxed according to the code. On the other hand, labor intensive agricultural and industrial projects should be encouraged on the condition that they hire Jordanians and compensate them fairly. Few of the investment projects that we are seeing would qualify.

The second priority in the letter involved better mechanisms to help the poor. There are multiple agencies responsible for aiding the poor, and the lack of coordination between them allows for abuse and waste. The King also emphasized the need to continue with microfinancing of small businesses, as this is a better way to help low people help themselves. There are many success stories related to such endeavors.

The third priority is to look for new energy sources. There is much talk about the use of oil shale as an energy source, and the economics of this are still not clear. The world energy market is tight and will grow tighter in the future. Therefore, an imaginative and bold approach would include more investment in exploration for oil, expanding use of solar and wind energy and even consideration of the use of nuclear energy.

The Jordanian economy has been doing well on a macro level for the past few years. However, most people realize now that macro level success is of little importance if the distribution of wealth is not equitable. Nahid Hattar believes that the letter indicates an important shift in the policy of the king. He calls it a "total reevaluation of economic and social policy" and "an end to liberal economic policies". I wouldn't go that far, but we need to wait and see how this letter is translated by the PM.


At 3:03 PM, Anonymous Nas said...

this is the process...

1- King writes letter...

2- PM recieves letter...

3- PM set up a committee to investigate...

4- Committee studies various economic policies for several months and comes up with a great report. Two possibilities can happen at this point:

a) based on the findings bills are created and parliament shoots them down.

or b) the report is shelved

5- PM writes a letter back to the King...

6- Restart

(if they used email this process would be faster)

At 3:30 PM, Blogger Khalaf said...

Lol. Thought you were too young to be so cynical.

At 6:40 PM, Anonymous Nas said...

lol dont confuse cyncial with observational :-D

At 12:27 AM, Blogger Batir Wardam said...

A very true image Nas and I am afraid things are evn worse. The committee formed will not work unless they get paid per diems and then delay the results to have more meetings and more per diems.


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