Kuwait City: The Kuwaiti government is allegedly discussing the possibility of cutting subsidies for citizens as part of a larger economic reform plan aimed at alleviating the economic impact of COVID-19.
During the weekly cabinet meeting, Barrak Ali Barrak Al Shitan, Minister of Finance, proposed raising the cost of electricity, water and fuel by 25 to 30 per cent, according to some news reports.
Al Shitan also proposed a 50 per cent tax be imposed on services for citizens and a 150 per cent tax for expats. Meanwhile, corporate profits could see a value added tax (VAT) profits on select goods.
“Budget rationalisation in the form of subsidy reforms is not only essential but inevitable given that both wages and subsidies make up the largest expenditures. Previously, they were subject to the volatility of oil markets, but now with global pandemic, the government has to reorganise its priorities with respect to spending,” Shaikha Al Hashem, an independent Kuwaiti researcher, told Gulf News.
Although this is not the first time the government has proposed budget cuts, in the past, subsidies reform did not affect citizens, as it only targeted corporate and commercial businesses.
Al Hashem clarified that, “any reforms related to subsidies is met with resistance and has and will remain a challenge to the government. The electricity and water subsidies reforms which took place in financial year 2014/15 and financial year 2017 steered clear from touching the residential sector, for example, although it makes up 50 per cent of total energy consumption.”
Given the upcoming November parliamentary elections, members of parliament are paying close attention to the government’s decisions and plans.
MP Riyadh Al Adsani filed a second motion against Al Shitan on June 30 for ‘misleading the public, approving a public debt project and depriving retirees from insurance benefits’. Al Adsani filed the first motion against the minister last month.
“MP Al Adsani’s second interpellation had three main themes of which one of them was most likely related to the MOF’s proposal to cut subsidies and increase service tax, as Al Adsani claimed that the Economic and Fiscal Proposal 2020 will negatively affect the citizen’s welfare status,” said Al Hashem.
Last month, the cabinet agreed to cut 20 per cent of the government entities’ budget for the fiscal year 2020-2021.
“COVID-19 has many implications for the economy. Almost all sectors have been badly hit, especially retail and SMEs. However, in my opinion, the major losses will be the loss of high-skilled foreign labour."
Adding that "Many jobs have been lost and this will definitely hit the economy, but going forward the cost for upskilling nationals, attracting talent and transferring that talent locally through knowledge and technology spillovers will be a challenge."
Al Hashem said that market will recover if "Labour market and replacement policies are not new, however the pandemic has created a shock that will likely require fast responses and reprioritising projects and initiatives in the national development plan if Kuwait wishes to realise its Vision 2035 and achieve economic diversification,” said Al Hashem.