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Economic reform tops agenda at NDP conference

What a difference a year can make. The last time the National Democratic Party (NDP) held its conference, coverage of the event focused on the internecine struggle for power between old and new guards – one a relic of state socialism, the other reform-minded and business savvy. The new guard emerged triumphant this year, introducing genuine reforms that include a complete overhaul of the country’s tax system. Gamal Mubarak, the country’s leading policymaker, described the new system as nothing less than “revolutionary.”

The three-day conference, held September 21-23, was held under the same aegis of “new thinking” as the previous ones. But this time, new thinking was personified not only by a few policy wonks from the NDP’s Policies Secretariat, but also by several ministers genuinely keen on change. Aside from the government’s technocrat-in-chief, Prime Minister Ahmed Nazif, three cabinet ministers grabbed the limelight as leading economic reformers: Minister of Investment Mahmoud Mohieldin, Minister of External Trade and Industry Rachid Mohamed Rachid and Minister of Finance Youssef Boutros-Ghali – once the government’s lone economic liberal. The reform-minded power trio, as well as Central Bank of Egypt (CBE) governor Farouk El Okdah, fresh from unveiling his plan for reforming the banking sector – dominated much of the news at the conference, prompting criticism that the NDP was touting economic reform at the expense of political reform.

For most observers, the jewel in the crown was the announcement of a tax reform initiative that would slash corporate tax by over half, restructure income tax brackets and grant a general amnesty to tax evaders. The proposed tax legislation is “the most fundamental restructuring of taxation in Egypt in a very long time,” NDP secretary for policy Gamal Mubarak told Business Monthly.

During the general assembly on economic issues, Boutros-Ghali explained the details of the proposed tax system and how it would address problems with the existing system, such as the lack of a special tax bracket for married women in dual-income households. Under the current system, these women are taxed as if they are single. Boutros-Ghali also said tax authorities would reduce the number of audits to less than 10 percent of taxpayers and shift the burden of proof of tax evasion to tax authorities.

An amnesty for tax-evaders would “provide time to get people to register,” the minister said, stressing that one aim of the new system was to get undeclared businesses to legalize their status and join the formal economy. The idea, discussed for several years by the NDP’s economic figures and independent think tanks, is modeled on Nobel prize-winning economist Hernando de Soto’s study on dead capital among Egypt’s poor.

The proposed plan to cut corporate tax, on the other hand, aims at encouraging entrepreneurship and foreign investment. Companies formed under the new legislation would face a maximum tax rate of 20 percent and tax exemptions would be abolished. Existing investment legislation, which grants tax holidays and other exemptions, would be gradually integrated into the new law.

Aside from new legislation, there were also hints throughout the conference that the new government would chart a more proactive and economically liberal course than its predecessors.

Nazif said subsidies were one target for further reform, despite an increase of 50 percent on the price of heavily subsidized diesel fuel earlier in the month. “It is impossible that we continue the subsidies to all people at the same level,” he told reporters. “Subsidies should be flexible – whoever needs more subsidies should get more; whoever needs less should get less.” He suggested that the government would gradually reduce subsidies and move towards targeted forms of subsidy for those who need it most, as well as new measures to fight black market trading of subsidized goods.
Nazif also addressed the problem of unemployment, which was highlighted as a key concern throughout the conference. He said the overstaffed government could not afford to offer new jobs. “When I employ a young person, I give him a chance for failure not for success, because he doesn’t even have a desk to sit at,” he said. “We can offer young people chances for employment through programs supported by the government, but not through direct hiring by the government.”
Rachid, for his part, stressed the positive effects that custom tariff reductions announced at the beginning of the month would have on industry and on the buying power of the average citizen.

Although some delegates called for maintaining high tariffs on certain “luxury” items to prevent capital flight, Rachid argued that the main advantage of low tariffs will be cheaper raw materials for the industrial sector.

The eagerness with which NDP delegates spoke of economic reform disappeared when the topic turned to political reform. The party rejected demands by opposition parties and civil society organizations that presidential power should be limited, emergency laws should be repealed and the constitution should be amended to guarantee more rights. It also refused to discuss whether or not President Hosni Mubarak would seek a fifth term in 2005.

The party did, however, agree to give electoral laws a makeover to ensure stricter monitoring of elections by a proposed watchdog composed of officials from the ministries of justice and interior, as well as some independents. Spending restrictions could be more strictly enforced under what Gamal Mubarak described as an Egyptian version of the US “campaign finance reform.” The move reportedly takes aim at independents who waged campaigns against NDP candidates before rejoining the party.

The party also proposed changes to the political parties law to reduce the number of NDP representatives on the Higher Political Parties committee. The powerful body has authority over which new political parties can form, but it may soon be reined in to put an end to its habitual indecision, which often leaves applicant parties waiting indefinitely for a ruling. A proposal for a three-month limit on rulings was put forward.

All in all, observers noted that economic reforms took the spotlight during the conference, while political reforms were played down. This may well be the new NDP strategy, as President Mubarak, who also heads the party, suggested during an interview just prior to the event. “We cannot bring about the political reform we seek given the economic situation,” he told state newspaper Al-Mayo, “and we cannot realize social justice without a strong economy that increases gross domestic product, creates new jobs and increases individual wealth.”

Issandr El Amrani

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