Jordanians feel the squeeze

Jordanians face higher cost of living as the government considers raising taxes and removing subsidies to counter large budget deficit.

Abdul Alwali Shwara, a taxi driver in Amman who earns US$400 a month, says the government is making it even harder for him to support his family of four children.

AMMAN // Faced with a budget deficit of US$1.5 billion, (Dh5.51bn) Jordan's government is raising taxes and reducing basic subsidies in a move critics warn will push middle-class Jordanians towards poverty. Last week, the government doubled taxes on mobile phone calls from four to eight per cent, and increased taxes levied on tobacco products and nuts by 13 per cent. It may also retract a decision to exempt hybrid cars from custom duties.

But of even greater concern for Jordan's heavily-burdened taxpayers is a possible move to reinstate taxes on basic food items, just as their prices have started to surge on international markets. Rumours are also rife that the price of petrol may increase after the government passed a temporary law in December allowing the cabinet to enforce special taxes on fuel by up to 25 per cent. "The government is imposing taxes on taxes. Enough with that! We want the government to ease the taxes. We cannot take it anymore," Abdul Alwali Shwara, a cab driver, said while waiting for passengers at Raghadan's transportation complex in central Amman.

The public is also fretting that the government may lift water subsidies, a plan denied by officials. The government hopes that by increasing taxes, it will shore up revenues, but economists blame the record deficit on increased government spending. They warn that tax increases will only squeeze the middle class, the backbone of the economy, and push more Jordanians towards poverty. "The biggest crime is backtracking on policies and tax exemptions issued by previous governments, and that is not acceptable," Yusuf Mansur, an economist and consultant said. "Levying taxes on consumption is a divisive tax that impacts the poor more than the rich."

Samir Rifai, the prime minister, defended the government's measures, and said the country was facing a particularly tough budgetary shortfall. "Difficult choices need to be made so that the government can continue to responsibly manage the budget, while at the same time, address the very real and urgent quality-of-life needs of our citizens," Mr Rifai said in a speech in Ammam last week. The deficit has a number of causes, from falling remittances to a 40 per cent drop in foreign aid in 2009 to an estimated $570 million (Dh2.1 billion), according to Oxford Business Group.

Since 2003, government spending began to expand faster than the GDP. The deficit tripled in size while the GDP only doubled. Critics also blame the revenue shortage on the government's mismanagement of the economy. "In an economy like Jordan's, that depends on foreign aid to finance projects and public spending, the government needs to postpone projects that can wait," Salamen Dirwai, the head of the economic section at Arab Alyawm, an independent daily, wrote this week. "Why should the government support the state TV with more than $10 million or put $34 million for two public parks?" he asked.

Critics of the government's fiscal policies say the new measures reflect its inability to come up with any means to secure revenues except by dipping into citizens' pockets. "It seems that the government has resorted to the easy way out to mend the budget deficit, wrote Roman Haddad, a columnist with the Alghad daily newspaper. But those close to the government defended its policies. Fahed al Fanek, an economist and chairman of the government-run newspaper, Al Rai, said the government has limited options.

"Curbing expenditure is limited since it is going to be restricted to capital expenditures such as [paying for] expropriations, the government's nuclear programme or studies," he wrote. "The only [viable] source is the citizens' pockets." The talk about reinstating taxes on 16 basic food items, including, milk is worrying Jordanians. "It is unbearable. They collect taxes but do not provide us anything in return," said Um Nasif, a 48-year-old retired teacher.

Back at the transportation complex, Mr Shwara said more than half of his $400 monthly salary goes towards rent, leaving him barely able to sustain his family. "The government's slogan is that the citizen is the most precious, but its actions are to the contrary. They do not know how we suffer. There are limits. There is going to be a reaction, and nobody guarantees what will happen." [e-mail]