Government says no plans to retrench employees

Dubai: The Dubai Government will not cut jobs despite the tight financial situation, a top official said.

"We have announced a 42 per cent increase in the spending, which means we will need more people," Nasser Bin Hassan Al Shaikh, director-general of Dubai Department of Finance, said while announcing the budget. "So I do not see a downsizing of operations."

The emirate employs 70,000 people in 26 government departments, namely Dubai Municipality, the Land Department, Department of Economic Development, the Department of Tourism and Commerce Marketing, Dubai Civil Aviation Authority, Dubai Health Authority, Dubai Police, Dubai Courts, etc.

"Their salary and benefits represent 30 per cent of the government's Dh37.7 billion expenditure," Al Shaikh said.

At this rate, the combined payroll value is expected to touch Dh11.3 billion this year. Al Shaikh said he does not anticipate any further increase in salaries.

"We have increased salaries of government employees a few times over the last two years. So, I do not see any reason to change this in 2009," he said.

Al Shaikh reiterated that the government will not increase fees and service charges. "However, we might introduce new services for which charges will have to be levied," he said.

The UAE largely remains a tax-free haven for investors and residents.

In the absence of taxes, the country's government expenditures are financed through a series of service charges and fees as well as revenue generated from oil and gas. Dubai is no longer dependent on oil, which contributes just four per cent to its GDP.

However, there is a plan to introduce value-added tax (VAT), which is expected to be implemented across the Gulf. The initial plan was to introduce VAT this year. However, it appears to have been shelved.

"The implementation of VAT will be across the GCC and we do not expect it before 2012," Al Shaikh said.

"We are working closely with the Federal Government on the VAT issue. It is not going to happen soon."

If implemented, VAT will be the first direct form of tax levied on consumers in the region. The plan came under criticism last year when imported inflation was wiping out the value of income by as much as 23 to 30 per cent, due to the local currencies' peg to the falling dollar.

On top of it, inflation was eating into people's earnings. The governments then decided to postpone it by a few years, although analysts say Dubai, which handled 80 per cent of the UAE's trade, would have benefited from it.

VAT is initially collected at the entry point. Dubai's ports and customs have been corporatised under Dubai World - a wholly-owned government entity.