The Moorish Wanderer

IMF Report Could Prove To Be Useful

Lots of bad news are coming with IMF consultations between August and November 2011. But as Jim Hacker in “Yes Prime Minister” quipped about hardships: “every problem is also an opportunity”. A blessing in disguise, but one that is going to take a lot of political courage out of otherwise not very plucky politicians.

Perhaps running on the theme of raising taxes is not a winner in elections time. Those parties who released their manifestos did not seem to price, or cap or indeed provide any measurable indicator of their future fiscal policy. But the overall impression I get is that the net effect of their proposals is a tax cut; not a smart policy, considering the very generous, almost spendthrift commitments to raise expenditure. But nonetheless, we shall roll with it. The IMF conclusions encompass one crucial sentence that goes unnoticed in an otherwise little-publicized document by the mainstream media; the reports warns that:

Although in 2011 the Moroccan government implemented short-term policies to address these constraints, in 2012 the government is expected to consider reorienting public expenditure and achieving a fiscal sustainability while fostering inclusive and sustainable growth in the medium term.

“Inclusive”. If I were a party strategist, I’d suggest the manifesto be geared toward that. PJD tried to focus on it, but they lacked metrics precise enough to impress and sway urban, middle-class voters to vote for them. A8 Alliance does not care about it that much, since their focus is to strengthen corporate Morocco first, bringing deficit to a 3% threshold and revive exports. So fiscal sustainability in Morocco basically means taking a serious look a the 32Bn boondoggle of tax incentives, tax deductions, tax exemptions and tax credits that do not seem to benefit those who need it the most. This includes high tax breaks for real-estate developers, a fiat moratorium on Agricultural taxes and the disastrous policy of scrapping the 42% marginal income tax rate.

To my best recollection, none of the three parties with publicly available manifestos (PPS, PJD and the RNI-led Alliance) have made commitments one way or the other on these tax handouts. No one dares to challenge the moratorium on Agriculture exemption even though a simple article introduced in the 2012 Bill can do it: abrogate Art.45 Alinea II on the 2009 Budget bill right away and not wait until December 2013. The mainstream political personnel would not dare do it because the King decided to extend the moratorium in 2008.

Hurrying the agricultural tax may prove to be a double blessing: first it increases budget receipts (which is always better than keeping on borrowing) and second, tax policy will influence estate property structure, as too much agricultural soil is under-used because of archaic regimes going on for too long, and no political power has an interest in reforming them; PJD won’t touch it, first because their core constituency doesn’t live there, and the other parties hope for a strong showing to beat PJD candidates in rural districts, so nothing will be done to even compromise their relationship with the farmers. And yet, we cannot afford to go on any longer with Habous, Guich, Joumou3 status, because productivity is at stakes, while other larger, well-funded and well-managed properties export products and yield good profits. Because of the ongoing soil status mess, the tax exemption goes on as a buffer to prepare for a reform that has yet to come.

Casablanca Stock Exchange created good value of its shareholders. Especially those investing in Real Estate. (Source: CSE)

Ending the 5.5Bn tax deductions in favour of RE developers as these go right into their pockets: the levels of profits the sector generates to its (few) shareholders are further fuelled by tax incentives. In the mean time, a pittance is given to households to buy a decent home they are longing for. RE companies listed on Casablanca Stock Exchange consistently beat the overall index, which means more dividends, more profits and an additional 5.5Bn gift from the state – by comparison, total dividends paid for by MASI was about 30Bn, that gives an idea of how much the tax break actually benefits real estate tycoons.

Scrapping the exemption on households subject of the defunct 42% marginal tax rate is also another meaningful policy that would alleviate the burden on the median classes households, as well as embody the principle of fiscal fairness: those fortunate enough should pay commensurately more. The great news is that our tycoons and wealthy 1% will not leave for a tax exile, nor would it hurt the economy; quite the contrary, imports of new luxury cars would decrease, at least. For the moment, the median class pays the highest effective rate across the board; those tax loopholes included in the tax code should be closed so as to bridge the gap in effective tax rates and thus both expand budget and households revenues, as well as insure that every category is paying at least commensurate to its income.

Scrapping special funds and wasteful programs in the Budget bill: though this is an ideologically-motivated policy, many autonomous funds need to be scrapped or privatized, simply because these are blatant examples of how special interests and lobbies get away with the taxpayers’ money; the 2012 Budget Bill provides funding for a motley of bizarre bureaucratic projects:

– Insurance companies get MAD 932Mln,

– Fez city gets a special fund, the only Imperial city to benefit from what could well be the hallmark of patronage, or worse, nepotism.

– A special SEGMA unit attached to the Finance Ministry top “supervise” privatization endowed with a 8Mln budget.

– 45Mln to the Alcohol centre at the Industry & Commerce Ministry (supposedly to spend it on drinks)

– The entire Habous Ministry swallows a 2Bn budget and it is almost impossible to check whether they are doing a good job – just have faith they do.

– Dar Es-Salam Golf Resort spends 18Mln out of the taxpayer’s money -who cannot afford to play golf- to subsidise the über-wealthy hosts and their posh hobby.

– Special Fund for Sports. Since the Sports Minister boasts about the excellent job he is doing, perhaps he does not mind taking 800Mln off his budget? After all, Moncef Belkhayat can find a way to deliver the same result with less money.

– Dar Al Nakhil Prints is endowed with a 2.3Mln budget even though the government has an official print at its disposal (with a budget of 13Mln)

(And these alone save up to 4Bn in taxpayer’s money, that is 18% of total budget deficit)

Do not take my word for it, just have a look at the late 1970s budget bills: on paper, everything seem to be alright. But in practise, careless management of public finances at the time got Morocco into a debt crisis and a 2 decades-long recession we are still paying the price for. This is a new case of mismanaged public finances through ideologically-biased fiscal policy with no immediate or tangible results on growth or even budget receipts.

I understand my railings about this hidden piece of news go unnoticed because I write in English. And because as long as mainstream media and other politicians do not get hold of this, those in charge of Morocco’s economy and its public finances will go on piling on the debt, serving generous tax cuts to those who do not need them and still get away with. there is a disaster in the making because no one seem to care about it;

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