CAIRO : Egyptian Finance Minister Youssef Boutros Ghali was upbeat last night about the performance of the economy with an anticipated growth rate of up to seven percent by the end of this year.
He also defended a new draft law on real estate tax.
Addressing the Club d Affaires Franco-Egyptien at a dinner at the Nile Hilton, Ghali said the Ministry of Finance would continue its drive to make room for the private sector to expand, yield enough resources to reduce the budget deficit, and continue drastic structural changes in policy to increase revenues.
The ministry, therefore, plans two changes next year. First, to introduce a tax on real estate; and second, to base next year’s budget for addressing the deficit on growth.
The planned tax is not very painful, assured Ghali a day before explaining the new draft budget in front of the People s Assembly. It is a very small tax on a very large base.
Subtracting about 20 million units from a total of 30 million real estate units in Egypt because their owners have either limited income or are exempt, Ghali explained that about 10 million units whose value is more than LE 500,000 will be subject to the planned tax.
If I put a tiny tiny amount on each place . [say] a hundred pounds per year, we easily make LE 1 billion. Let alone if we start taking more, he went on.
Defending the idea, Ghali said that the planned tax should not affect economic growth, but they should yield enough resources to allow me to reduce the budget deficit and, therefore, make room for the private sector to expand.
Answering a query about the tax, Ghali said that the tax may amount to up to 10 percent of the value of the real estate unit, meaning about LE 100,000 annually for a unit worth LE 1 million.
The finance minister said that the second issue is that we will base our next year budget for addressing the deficit on growth. Previously, growth was a subsidiary effect that either happened or not. This year on the contrary…We look for growth in the economy. We make sure that what we spend generates growth or makes growth more easily attainable.
He explained by saying that the government will increase subsidies to exports by 70 percent from LE 1.5 billion to LE 2 billion. Also, subsidies to industrial zones will increase from LE 200 million to LE 800 million.
That is a production subsidy. A subsidy that will generate a push towards greater exports, meaning greater production, meaning greater employment, meaning greater consumption, meaning greater taxes and everybody is happy, he added.
The subsidies will also include paying LE 15,000 to people buying up to 60 square meters of land around Cairo, not forgetting the state’s role in protecting the poor and limited-income brackets. The minister explained that this step is meant to increase jobs in the infrastructure and reconstruction sectors, create jobs, and collect more revenues and taxes in a period of 12 to 18 months.
The minister anticipated that economic growth would reach percent or above by the close of the decade. That reflected increase in domestic investments by 30 percent and in foreign investments that crossed the $10 billion mark, he explained. Consumption also grew by eight percent, he said.
Egypt s exports also increased in the first half of 2007 by 46 percent, he went on, saying the result is that we have a very solidly anchored growth.
Egypt also has a surplus in its balance of payments, taking services and balance of exports and imports into account. We are lending the rest of the world. This is not the position a developing country like Egypt usually finds itself …touch wood.
The minister took pride in the structural change he introduced to the tax law. Despite reducing taxes by about 50 percent, revenues have increased. It is not a miracle, he said, adding that revenues increased by 40 percent and the base of taxpayers increased this year by up to three million people to transfer about LE 7.4 billion in comparison to about 1.6 million taxpayers only in 2005.
The minister said that the government is still working on reducing inflation, the budget deficit in terms of its percentage to the GDP, and unemployment, by allocating about LE 500 million for training youth to fill in the demand for skilled labor.
Unemployables, said the minister, are those who cannot find jobs because they lack the skills, and need training for one or two months. That is enough to discourage foreign investors or at least decrease them, he said.
The banking system should move more quickly giving more credit in the coming years, he said. Credit growth stands nowadays at four percent. This figure should be around 12 to 18 percent, he said.
One of the new ideas the minister and his team thought of is creating a treasury account at the Central Bank of Egypt to deposit the public monies given by the treasury to institutions, such as Cairo and Alexandria universities.
The monies are under the disposal of the institutions but instead of putting them at banks and re-borrowing them from the treasury, they could be used to decrease the public debt by LE 40 billion.
We are feeling better. Things are improving . Still, Egypt needs lots of institutional reforms. We have gone a long way but a long way still lies ahead [for the public sector to go hand in hand with the private sector].