Jordan faces tough economic path, after protests scupper tax hikes

 AMMAN (AFP): Jordan's authorities may have shelved a proposed income tax hike after a week of protests -- but they still face the tricky task of balancing popular demands with the need to fix the economy.

The controversial legislation sparked some of the biggest economic demonstrations to hit the country in the past five years, forcing a change of prime minister, with Hani Mulki stepping down in favour of Harvard-trained economist Omar al-Razzaz. 

The ill-fated plan was to raise taxes on individuals by at least five percent and on companies by between 20 and 40 percent -- the latest in a series of austerity measures linked to a US$723-million IMF loan agreed in 2016.

Analysts say citizens of all social classes have hit the limits of their tolerance, after repeated price hikes as the government looks to slash the country's debt. 
In the streets of Amman, the atmosphere is sombre, despite the apparent victory. 

The tents and music that usually enliven the capital's streets during Ramadan are largely absent this year. 

"The capacity of citizens to pay is nearly zero and any increase in taxes means a decline in income," says analyst Labib Kamhawi.

Since January, the price of bread has doubled and there have been five hikes to petrol prices. And electricity bills have shot up 55 percent since February.
The World Bank says Jordan has “weak growth prospects” this year, while 18.5 percent of the working age population is unemployed.

“What happened is unprecedented,” Kamhawi says of the week-long protests that rocked the capital and provincial towns.  The events represent “a convergence of the interests of all social classes - the rich, poor, middle class, businessmen, industrialists (and) traders,” he adds. 

Jordan has been under the tutelage of IMF programmes for nearly 30 years, but popular frustration has built up a head of steam over the last two years because the government has refused to listen, says Ahmad Awad, head of the Jordan Centre for Economic Research. 

The tax bill was the straw that broke the camel’s back, he says, adding that the withdrawal of the tax bill was inevitable. 

The proposals “did not remotely constitute a fair basis for tax. It would have exacerbated the economic slowdown by further reducing households’ spending power,” says Awad. 

The withdrawal of the proposals on Thursday were celebrated on social media and protests stopped overnight. 

“We must give Mr Razzaz a chance”, protestor Hadil Ghassan posted on Facebook, while warning unrest will resume if social ills remain unaddressed. 
Analysts say the new government’s main challenge will be to cobble together a long-term economic strategy that avoids repeating the “errors” of the past. 
The government is committed to reducing its debt to 77 percent of GDP by 2021, from 94 percent in 2015, but has so far relied on raising levies, says Kamhawi.
Instead, it should focus on bringing spending under control and reducing the corruption that plagues the economy, he adds.  New premier Razzaz on Thursday pledged that any tax rise would systematically be matched by improvements in the health, education and transport sectors. 

The 58-year-old represented the World Bank in highly-indebted Lebanon between 2002 and 2006. 

“His post requires a very solid personality, capable of confronting all the corruption that is rotting public bodies and standing up to international financial institutions,” says Kamhawi.  But Jordan faces major strains on its budget. 

Hosting hundreds of thousands of refugees from Syria’s war is a major burden on Jordan’s public finances, with the government regularly calling on the international community to provide more help.   “The equation is very difficult,” Kamhawi says.  Political analyst Adel Mahmoud agrees, but believes “Razzaz faces a historic opportunity.” 

The new premier must choose a ministerial team capable of correcting the past mistakes governments that “have only used citizens’ pockets for solutions”, he say