Jordan faces tough economic path, after rolling back tax hikes

Jordan's authorities shelved a proposed income tax hike after a week of protests, but still face the tricky task of balancing popular demands with the need to fix the economy.

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

The plan had been to raise taxes on individuals by at least 5% and on companies by between 20 and 40%, as part of a series of austerity measures linked to a $723-million International Monetary Fund (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.

"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% since February.

The World Bank says Jordan has "weak growth prospects" this year, while 18.5% of the working age population is unemployed.

'Not remotely fair'

"What happened is unprecedented," Kamhawi says of the week-long protests, noting these represent "a convergence of the interests of all social classes - the rich, poor, middle class, businessmen, industrialists (and) traders".

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

The tax bill was the final straw, 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.

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% of gross domestic product (GDP) by 2021, from 94% 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.

'Historic opportunity'

The new Prime Minister 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 significant 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 "al-Razzaz faces a historic opportunity."

Al-Razzaz must choose a ministerial team capable of correcting the past mistakes of governments that "have only used citizens' pockets for solutions", he says.