The Grand Serail in Beirut, on April 28, 2024. (Credit: Mohammad Yassin/L’OLJ)
The cabinet was set to begin discussions on the budget proposal on Tuesday, which was prepared by the Finance Ministry and submitted on time. The session was later canceled because it was unable to reach quorum due to retired Lebanese army soldiers blocking the roads to the Serail to demand a better quality of life.
The draft meant to be discussed outlines a 39 percent increase in public spending compared to 2024, amounting to $4.77 billion, with a projected deficit of 4.11 percent. The state may consider financing this shortfall by issuing new treasury bonds (government bonds denominated in Lebanese lira). It also sets aside the equivalent of more than $600 million in Lebanese lira as budgetary reserves, an amount significantly higher than in previous years.
These figures, however, are not set in stone, and a completely revised budget could emerge by October, provided the executive branch adheres to the constitutional deadlines. What’s clear for now is that the proposal has left both the private sector and labor unions largely dissatisfied.
Private sector and unions weigh in
The official congregation of labor unions in Lebanon has already submitted “several remarks and suggestions” to the government and the Finance Ministry, according to their Secretary-General and President of the Beirut Traders Association Nicolas Chammas.
Chammas noted that the association is waiting for the final version of the budget before taking a formal position while adding that several provisions in the current draft are problematic, without elaborating further.
On the labor side, the General Confederation of Lebanese Workers (CGTL) is finalizing a report that will outline its concerns with the draft budget. The Confederation’s president Bechara al-Asmar stated that the draft budget follows the same flawed approach as previous years, lacking long-term vision and investment for the future.
Despite the rise in spending, the budget fails to introduce measures to adjust public sector salaries, which have lost significant value due to the collapse of the Lebanese lira.
Tax attorney Karim Daher, a member of the Lebanese Association for Taxpayers’ Rights (Aldic), who has closely followed the development of Lebanon’s financial laws in recent years, views the draft as largely flawed, despite a few positive initiatives.
Exaggerated or ineffective expenditures
“From a methodological standpoint, we remain in line with previous budgets, with revenues and expenditures appearing to be determined without any prior study, reduced to a simple formula: budget revenues, particularly from taxes, are used to cover public expenditures," said Daher. He criticized the government’s failure to consider the state’s role in providing essential social and economic services.
Daher also said that many of the budget’s expenditures are either excessive or ineffective. For example, the government continues to pay salaries and pensions for 300,000 public employees, including the armed forces. Yet, according to studies, only about 8,000 of these workers are part of the productive workforce.
“This system of inflated positions and patronage not only bloats the budget but also prevents meaningful salary increases for deserving public employees,” Daher said.
Moreover, funds squandered on redundant positions could be redirected toward modernizing public services, particularly through digital upgrades, which could help reduce bureaucracy and combat corruption, according to Daher.
The budget’s greatest flaw is that it lacks any mention of essential reforms, he continued, adding that reforms are needed to restructure the banking sector and address the country’s mounting debt. “There is no serious commitment to reform from the ruling class,” he said.
Uncertain revenues
On the revenue side, the picture is equally grim. “It’s hard to believe that the Finance Ministry’s projections, which aim to cover 95 percent of the proposed spending through taxes and other revenues, are reliable,” Daher said.
He added that the country remains in crisis, having recently entered its 12th month of turmoil, exacerbated by the effects of the war in Gaza on South Lebanon. The tourist season, which had started better than expected, was cut short by rising tension in South Lebanon at the end of July. Even imports are expected to decline, with the added risk of Lebanon being placed on the Financial Action Task Force (FATF)’s gray list and its repercussions.
“How, under these circumstances, can we expect tax revenues to increase?” he asked, adding that the preamble to the budget — where caretaker Finance Minister Youssef Khalil should explain the foundation of his draft — is not available.
Although the budget has several shortcomings, Daher pointed out a few positive aspects. He mentioned, for example, that this preliminary draft does not propose any tax increases or new compulsory levies and is content to adjust certain allowances and charges to the current exchange rate reality.
“This is particularly the case with Articles 24 and 25, which adjust the allowances applicable in calculating inheritance and gift tax, which had not previously been amended in the 2024 budget, no doubt through oversight, at the same time as the adjustment to the tax brackets.”
Finally, he points out that one of the main budgetary riders (a provision unrelated to the budget, introduced into the Finance Bill with the hope of easier or more discreet approval) in this preliminary draft introduces a beneficial measure. Article 18, gives greater precision to the definition of the Ultimate Beneficial Owner of a company or entity, targeting in particular those who hide behind nominees, and imposes penalties on taxpayers who fail to disclose, or disclose erroneously or misleadingly, the Ultimate Beneficial Owner. This measure is in line with the recommendations of the FATF but could be censured by the Constitutional Council because it is an unrelated budgetary provision or “a budgetary rider.”
This article was originally published in French in L'Orient-Le Jour and translated by Sahar Ghoussoub.
