Egypt’s Economist Samir Radwan about Finance 101

Published on Al-Ahram weekly, Interview by Niveen Wahish, Dec. 29, 2011- Jan. 4, 2012.

… What reforms were you planning to embark on as minister of finance?

  • I had three files on my desk. Once the 2011/12 budget was finished, I was going to deal with wages, taxes and untangle the budget. We had originally budgeted for a 12 per cent deficit and I had earmarked LE15 billion to begin to settle accounts with the Petroleum Authority and Pensions Fund.  

Were you planning to impose a progressive tax?

  • I did increase taxes by five per cent. But I was not planning to impose more. You can collect more revenue without the progressive tax. When taxes are high, the revenue increases until it reaches a certain point and starts decreasing.
  • We should not get hung on the fact that there is progressive tax in the US; our economy is not the same size as that of the US. But I was also planning to start implementing the Value Added Tax (VAT).
  • This would have brought in double revenues of the sales tax because it allows for leakage in the system.

What were your plans for the property tax given the opposition to it?

  • The revenue from property tax on houses represents a limited sum to the overall revenue from the property tax. The greater part of revenue comes from establishments, not private housing. Indonesia presented a solution; they raised the ceiling for exemption to make sure the majority of the people were exempt. The ones that must be taxed are owners of palaces and 99 per cent of the Egyptians can be exempt. The name of the tax was going to change to community tax because in the US and Europe, it never goes to the state but to the local authorities to spend on improving the community.

Did you find being an academic different from being in an executive position?

  • I was an academic in the beginning but through my work in the International Labour Organisation, I was a practitioner on the ground, involved in reform.
  • To be an academic is important because labour market policies and tax policies evolve very quickly and you have to keep up with developments. As a decision maker, you either know or you have good advisers. Even to receive advice, you have to have the knowledge to make the judgment. I visited 76 countries, a large number which I was responsible for their reform programmes. I saw them implemented and they worked.

Why did your reform not work this time? Was the problem that this is your country?

  • No. The problem here is that once you have a plan, you have too many cooks. There should be one person or ministry in charge for any project and they should be held accountable.

What is the story behind the International Monetary Fund (IMF) loan? … //

… What needs to be done in the upcoming year?

  • We need to do less talking and more action. We really need to settle the political impasse and get out of this political knot. Do not get absorbed in details. It is like you are arguing on the Titanic. Furthermore, the economy is a reflection of the political situation, so how do deal with it? It is nonsense to say that the SCAF should hand over power. Hand over to whom? We have to understand that the SCAF is an important part of stability in this country but we want to see a very clear roadmap for the handover. Is setting up a consultative council for the constitution the way out to calm people? Is advancing the presidential elections the solution? All this could and should be discussed but not through statements. The longer this process stays, the more confidence is lost and that is disastrous.
  • Once this stops, you would be surprised how quickly the economy would recover.

Do you believe the pound should be allowed to depreciate to avoid the drainage in the foreign reserves?

  • That is a real danger. Our problem is the imports. We are a net food importer which means you will import inflation if you devalue. Inflation will hit the poor more than the rich because you are a net importer of food. Even with the other industries, 40 per cent of them are imported. My fear if you devalue is that you will add fuel to inflation. The first casualties of inflation are the poor. That is why I disagree with economists who call for devaluation and say there is no other way. The other way is to borrow and use the money to restart the engine.

Do you believe the army budget should be a lump sum and go uncontested?

  • We have to be very careful about revealing everything in this country. This country is infiltrated. The wars in the world now are not by arms but by information. Others collect every single every piece of information so you have to be careful what you should reveal and what you should not. I am not arguing that the army or presidency or police should have no control over their budget. We are not going to reinvent the wheel, and should move on. Look at what the other countries are doing. They have a defence committee in parliament. It should be made of people who will not part with the information the next morning. There is an element of national security that has to be respected but that does not mean it should be a black hole.

(full long interview text).

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