626 Parliament Approves Fuel, Cigarette Price Hikes
Surely the timing is a coincidence.
Still feeling good about that 30-percent raise for bureaucrats and workers at uncompetitive factories? How about when you consider that the government still hopes to get rid of a lot of those bureaucrats and to sell a lot of those factories anyway?
CAIRO, May 5 (Reuters) – Egypt’s parliament approved steep increases in fuel and cigarette prices and vehicle licence fees on Monday to cover the costs of public-sector pay hikes that President Hosni Mubarak proposed last week.
Economists said some measures, such as the increase in fuel prices, would add to high inflation and offset some of the effects of the wage increase.
“The government is giving with the right hand and taking back with the left hand,” said Hani al-Husseini, a tax expert and a senior member of the leftist Tagammu opposition party.
A booklet distributed by a parliamentary committee dominated by the ruling National Democratic Party (NDP) said the price of 90 octane gasoline would rise 35 percent to 1.75 Egyptian pounds ($0.33) a litre.
The lower house of parliament approved the measures, proposed earlier in the same day by the ruling party, by a vote of 297 in favour and 76 against, said parliament speaker Fathi Sorour, who had called for an urgent decision on the proposal.
Mubarak, facing growing public dissent over price rises, last week offered public sector employees a 30 percent increase in basic salaries, provided necessary revenue could be found so that the increase did not add to the budget deficit.
Prime Minister Ahmed Nazif told a news conference the price rises would go into effect starting at 1900 GMT, and would generate 12 billion pounds for the budget to pay for expected wage increases and help handle higher global energy costs.
He said public transport fares would not rise.
Asked whether the combination of wage increases and price rises would affect inflation, Nazif said: “It won’t have any negative effect on inflation because the money to finance wages is coming from real sources.”Fuel subsidies had been expected to cost 57 billion pounds in the financial year ending on June 30. The government has wanted to raise petrol prices for years, saying the subsidy benefits mainly rich people with large cars.
Ahmed Ezz, a senior ruling party official, told parliament the government now spends 111 pounds a month on subsidising the average car owner who uses 100 litres a month.
‘CONSPIRACY AGAINST THE POOR’
The measures sparked strong reactions by opposition Islamists and independent members of parliament, and the head of the Muslim Brotherhood’s parliament bloc, Saad el-Katatni, decried the package as a “conspiracy against the poor.”
“This is a tough day, a black day in the history of the Egyptian people because prices rose,” Katatni said. His group holds roughly a fifth of seats in parliament.
The rises in vehicle licence fees were steepest at the luxury end of the scale. For cars with engines with a capacity greater than 2030 cc, owners would pay an annual fee equivalent to 2 percent of the car’s value, up from 500 pounds at present.
The price of high octane gasoline would also rise at a rate higher than for other fuels. While diesel and kerosene would rise 47 percent, to 1.10 pounds a litre, the price of 96 octane petrol would go up 57 percent to 2.75 pounds a litre.
The price of foreign-brand cigarettes would rise by up to 20 percent, against about 10 percent for local brands.
The booklet proposed rises of up to 57 percent in the price that energy-intensive industries pay the state for natural gas, an extraction fee of 27 pounds a tonne for clay extracted from quarries and the abolition of tax breaks on some industries.
Finance Minister Youssef Boutros-Ghali told Reuters last month that the salary increase would not have an inflationary effect if the government could find extra revenue to cover it.
But Angus Blair, head of research at Beltone Financial, said the price hikes would drive up inflation, which rose to 14.4 percent in the year to March, the highest rate for three years.
“Obviously, whenever you put basic products prices up, you are going to have an immediate impact on inflation … and it may well just urge other businesses to increase prices because once inflation rises it is quite difficult to bring it down again,” he told Reuters.
Husseini the tax expert said the government should instead raise corporate taxes and impose “exceptional and temporary” taxes on massive profits in the booming real estate sector. ($1 = 5.35 Egyptian pounds) (Reporting by Alaa Shahine, Aziz El-Kaissouni, Mohamed Abdellah and Wael Gamal; writing by Jonathan Wright; editing by Marguerita Choy)
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Hey Skeptic,
When you think about it, what other options do the government have. They need to cover the 30% and keep the investment coming in.
So they tax the rich + some sin taxes (Octane 90 and 96) users and Marlboro smokers, the most. Again if you drive a provate vehicle with more than a 2000 cc you can afford the 500 pounds. If you can not you downgrade.
They are also charging businesses more.. “rises of up to 57 percent in the price that energy-intensive industries pay the state for natural gas, an extraction fee of 27 pounds a tonne for clay extracted from quarries and the abolition of tax breaks on some industries.”
The only questionable increase in the Deisel and kereosene increases.
The way I see it, they are asking upper middle class and above + Businesses to foot the bill. Seems reasnoble to me!
Comment by Memz — May 6, 2008 #
Also, there is an error in your template. It says no comments on posts where comments exist!!
Cheers mate!
MemZ
Comment by Memz — May 6, 2008 #
I’m with you part of the way, Memz. But ultimately, I must respectfully disagree. I’m no economist, but raising prices to pay for a program designed to address high prices does not seem logical to me.
I’m absolutely in favor of the surcharge on big vehicles. Just note that it used to be LE500… now it’s 2 percent of the value of the car, a potentially huge, and, in my books, absolutely fine increase. Given the high price of subsidies and the problem of traffic, there should be an EVEN HIGHER charge on SUVs in Cairo and Giza (oh and now Helwan).
I recognize that petrol is still heavily subsidized here, and that when oil prices are at >$120/barrel, that costs even more.
But it’s not just the rich who will feel this: cab drivers, microbus drivers, bus companies, farmers, industry, and the people who use their goods and services will too. Petrol prices don’t exist in a vacuum, and not only SUV drivers are affected when they rise.
A 30-percent raise is a fine and magnanimous gesture in the face of the current levels of inflation. But it applies to 19 percent of the population, half the percentage of those who live on $2 or less a day. Even for those 19 percent, the 30-percent increase doesn’t cover the accrued annual inflation since the last time they got a similar raise.
In other words, the poor, too, are being asked to pay for their own raise in response to rising prices.
What else could the government do? Look, I’m not the best person to answer this, but…
*Cut down on corruption and waste. Stop turning a blind eye when individual officials collect kickbacks for juicy business opportunities in lieu of the government collecting taxes.
*Plug the holes that suck money out of the measurable, taxable economy into the informal economy.
*Double the cost of a tourist visa.
*Put a toll on private cars going to Gouna etc.
Only half-serious here. I know corruption and waste are an integral part of the house of cards. Fire 2/3 of Al-Ahram’s staff, that proportion of the staff that has nothing to do, and you create hundreds of educated, unemployed people with an interest in politics.
Trim the waste at any large government undertaking (a Ministry, an airport) and thousands are lost without a safety net.
I know it’s not easy. But I have faith that a team of smart people looking carefully at all Egypt’s potential sources of revenue could find plenty of ways to drum up money.
The good news is that there are a lot of really smart, diligent people working in the ministries responsible for the country’s finances. I wouldn’t be surprised if they’d already produced 100 great ideas that haven’t been tried.
Comment by The Skeptic — May 6, 2008 #
Haha; great response!!
A couple of things, my response was not focused on defending this government. I am not their biggest fan, but I really would not like to be in their shoes.
But we both know that many people will complain if any of your suggestions become a reality.
But your analysis of the fuel prices are not very true. The vast majority of the microbuses and taxis in Egypt use 80 Octane and not 90, 92 or 96 octane.
As for bus companies and industries, they pay some of the lowest corporate taxes and the economy has been treating them well. Really them and the middle class can shoulder this one.
I feel angry, when an AUC grad making 10K a month and lives with his parents complains about the prices.
Its like the steel prices all over again, we have been bitching and moaning about how the increase in prices is hurting the poor. When was the last time in Egypt you have seen the poor buy steel. And why shouldn’t the prices increase with the ridiculous boom in real estate market; the increase in price is reflectinve of the increase in demand.
But that doesnt mean the government is all the innocent; corruption is everywhere. It has in my opinion been engraned in the Egyptian mentality and culture fabric. A general overhaul of government wont solve it on its own. Education is a big factor
We need a massive re haul of the education system, an emphasis is need on critical thinking and entrepreneurship.
Much can improve in the country through decentralization in my opinion, that along with education and reducing the role of the security apparatus in day to day live will result in change. Change that will take time a long time.
– I hope this brain dump makes some sense!
Comment by MemZ — May 6, 2008 #
It does. Thanks for posting it. Tasharafna.
And apologies for the delay in comments showing up — they’re moderated, and I don’t spend ALL of my life maintaining the blog. 😉
Comment by The Skeptic — May 6, 2008 #
This should be interesting. I mean, this is one of the first times in recent history where the Egyptian government is (openly) doing something which will make Mubarak more unpopular. Part of the way that they have maintained control over the teeming masses in Egypt is by not giving people anything to unite against. But upping the price of gas and ciggies definitely goes against that. I’ll be interested to see what the consequences of this are.
Comment by Tara — May 7, 2008 #
Here’s a reaction piece from Reuters:
http://tinyurl.com/43kzdm
Comment by The Skeptic — May 7, 2008 #
Hey Elijah,
I read the article earlier this morning. To tell you the truth, I am not surprised by the response.
It is definitely a catch 22 siuation.
Rashid was talking on Al Qahera Al Youm recently (i dont know when since I only see it on YouTube) http://www.youtube.com/watch?v=XqXraiitn9w
But he said something of extreme significance, is that we are at a cross road where we can either focus on 1)Increasing production and Productivity
or 2) Focus on price controls and da3m
Unfortunately, a lot of the commentators are trying to have it both ways. Which is hard to do.
Again Elijah, I m not the biggest fan of the Mubarak regime, but I sympathize with the nazif government. Not that they have done everything right, because they haven’t, but more because they have a vision and persistence to work towards it. But they are stuck between a rock and a hard place, and they havent given up.
Comment by Memz — May 7, 2008 #
“we are at a cross road where we can either focus on
1)Increasing production and Productivity
or 2) Focus on price controls and da3m”
He’s right.
Comment by The Skeptic — May 7, 2008 #
So which side of the cross road are you recommending us to venture in, and how do you suggest we tackle it?
I guess that requires a post of its own!
Comment by Memz — May 7, 2008 #