The Moorish Wanderer

[Sneak Peek] 2012 Budget Bill

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on November 4, 2011

Early October 2011, The budget bill has (finally) been delivered to the representatives at parliament house to debate, amend and vote on. Not surprisingly, the budget has been so consensual the next government will most certainly not reconvene to introduce a rectification bill next session. As for the first draft that has been hurriedly withdrawn, we will never know its content (perhaps we will, but later. Much later)

Figures out of a 325Bn budget

In general terms, this is not a bad bill. In the sense that it does not depart from the previous more or less successful attempts in reigning in budget deficit in the region of 3% GDP, the bill brings a moderate 20Bn net borrowings requirement package, in line with the previous bills.

But behind seemingly “business as usual” figures hide the harsh truth of financial mismanagement; we can expect the service debt to go up in the next couple of years from the current 42Bn to match the 400Bn stock of debt, courtesy to that courageous decision to avoid social unrest with the most simplistic policies a government can come up with, i.e. increasing subsidies on strategic goods – the compensation fund was indeed the main reason why the 2011 deficit worsened from 13Bn to almost 34Bn.

We can also expect pay-wage to rise at a higher trend, thanks to the additional 25,000 new civil servants positions provisioned for in this draft bill. Ironically though, a third of it goes to the Interior Ministry – in fairness, about the same number of positions have been created for the Education department as well. Whatever the expected benefits of having extra local civil servants -or more importantly, more teachers in the classrooms- the drain of civil service pay-wage will keep on increasing, and there is a simple explanation to that: whenever a group of productive civil servants (teachers, police force members, local functionaries, doctors, etc.) are recruited, another batch of bureaucratic staff is recruited as well.

Humphrey Appleby's shopping list - Budget Bill 2012

For every collected dirham in government receipts, 38 cents goes to pay civil servants alone. Even more concerning is how one can easily equate government receipts from income taxes (28.5 Bn) to the interest on paid debt (20.2 Bn) and these numbers have been going for some time now. The trouble is, it is not like the government’s hands are tied and cannot raise more revenues out of the taxpayers (corporations or otherwise).

The fiscal exonerations report points out a maintained yearly increase of 7.63%, and thus broke through the symbolic ceiling of 30Bn tax deductions, exonerations, loopholes and credit that would more than make up for the deficit. Real-Estate developers still make up the bulk of tax deductions recipients, to the tune of almost 5.5Bn (a 22% increase from the 4.4Bn offered last year) while other sectors that would benefit from these deductions and generate some income, like Tourism, Automotive and Chemical industries do not enjoy a third of what RE tycoons get in terms of VAT and Corporate tax breaks.

It seems the spirit embodied in these deductions is to slow down the growth rate of fiscal receipts (currently at 9.8% for a projected 5% real GDP growth) and that’s where a dangerous contradiction lies: the 2012 exonerations reverse VAT deduction from 13.7Bn in 2011 to 13.2Bn 2012 even though domestic consumption still contributes around 1 percentage point to GDP growth. If indeed the tax deductions were geared toward sustaining growth, then investment and exports are the ones needing the deductions, and real-estate development doesn’t account for its 5.5Bn compared to 3Bn for exports for instance.

On a lighter note: the Moroccan taxpayers are the proud recipients of 10,000 receipts from trials and experimental farms managed by the Agriculture ministry; and PJD caucus will have a field day with the Alcohol taxes receipts to increase them from the 1.1Bn, i.e. 0.3% of total Budget to whatever level they set to both satisfy their Moral Crusade (sorry, Jihad) against that devilish beverage, and at the same time destroy a domestic industry and compel consumers to chose contrebande or imported products.

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