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December 12, 2016
On December 10, following weeks of negotiations, Tunisia’s parliament approved a $14 billion budget for 2017. The budget includes a number of provisions aimed at cutting the country’s deficit in line with the economic reform plan of Prime Minister Youssef Chahed, who was appointed in August of this year. However, the controversy surrounding the budget and rejection of certain measures raise questions regarding Chahed’s ability to push through difficult but needed reforms. While the 2017 budget was presented by Chahed as one of consensus, it is clear that the country remains divided over reforms aimed at reviving the economy.  

The 2017 budget includes several important provisions. It revises income tax rates for the first time since 1989 in an effort to ease tax burdens on lower income groups, enacts a 7.5 percent increase in company taxes, and freezes public sector hiring outside of the security forces. The budget’s emphasis on assisting lower and middle income groups also reflects its emphasis on social inclusion and inclusive growth. In addition, the new budget introduces efforts to increase accountability among citizens. The new tax laws will allow the tax administration to better trace and collect information about taxpayers in order to ensure compliance with the law. These efforts are critical, as the World Bank documented that tax evasion prior to the country’s 2011 revolution cost the country at least $1.2 billion. Indeed, Minister of Development, Investment and International Cooperation Fadhel Abdelkefi emphasized that the government must “be inflexible on the issue of collecting taxes” going forward.

Another crucial element of the 2017 budget aims at increasing transparency in the country’s banking system. According to the new budget, the Central Bank of Tunisia, banks, financial institutions, investment companies, stock brokers, and the National Post Office must inform the tax administration of new accounts opened by taxpayers and copies of bank statements within twenty days of a request to do so. The lifting of bank secrecy will benefit the country as it seeks to increase accountability surrounding taxation.   

Still, Tunisia witnessed significant unrest over the 2017 budget. Upon taking office, Chahed’s government was presented as the bold, fresh face the country needed to move forward with challenging reforms. However, the government has come up against traditional resistance from powerful interest groups that threatens its deficit cutting efforts, and it is unclear whether Chahed’s government can fully deliver on its economic objectives. The day before the 2017 budget was passed, the parliament rejected two articles in the budget that would have imposed new taxes on lawyers and pharmacists in an effort to raise further revenues. Thousands of lawyers went on strike last month in reaction to the proposed taxes, and thousands protested in front of Chahed’s office in the lead up to the vote on the budget. Other professionals, including doctors, protested against tax reforms that would affect their occupations. Tunisia’s lawyers and pharmacists halted their protests after the parliament rejected the additional taxes on their profession.

The government’s planned reform efforts aimed at the public sector were also affected by opposition from the powerful Tunisia General Labor Union (UGTT), which threatened a general strike over the government’s proposed freeze on public sector wages. The government and the UGTT reached a deal just days before the 2017 budget was passed that will spread out wage increases for public sector employees over the next two years. Chahed praised the government’s negotiations with the UGTT and the resulting “reconciliation,” however it is clear that even under this new bold government, the union still has the ability to act as a spoiler for difficult reform efforts.

While the government was able to compromise with powerful interest groups in order to pass the budget, opposition among many Tunisians remained. December 10 witnessed opposition among the unemployed, lower and middle class Tunisians, and those from the country’s marginalized regions that were unhappy with the austerity measures included in the budget. Tunisia’s unemployment rate stands at above 14 percent, and some viewed the budget as benefitting the wealthy and hurting those Tunisians who are already suffering from the country’s poor economic state. Tunisia’s public sector is certainly bloated, the freeze on public sector hiring comes as a blow to many unemployed Tunisians. Growth has been slow—at only 1.8 percent this year—and more needs to be done to increase job creation. 

Recognizing this, Chahed’s government has sought to boost growth and investment by attracting significant external assistance. The Tunisia 2020 conference that took place last month brought in $14 billion in pledged financial support to the country and was presented as a major success for the country. Chahed called the conference “the best proof of Tunisia's ability to win back the confidence of its partners.” However, how much of these pledges will actually be delivered, and whether planned infrastructure projects can deliver needed jobs, remains in question. Finance Minister Lamia Zribi recently said that Tunisia would need $3.7 billion in foreign loans in 2017—$1 billion more than had been anticipated earlier this year. And while Tunisia’s five-year development plan, which was unveiled at the conference, aims to achieve an annual growth rate of 4 percent by 2020, this will not be easy. 

Following its passage, Chahed said that the 2017 budget signals the start of Tunisia’s economic recovery. He predicted that 2017 would witness accelerated growth as a result of increased investment, production and exports, and job creation. And while Chahed has certainly made an effort to push the country towards difficult reforms, almost six months after taking office, it remains to be seen whether his government can deliver on the “bold action” that was heralded upon its appointment. The past couple of months demonstrate that vested groups in Tunisia will not accept lightly reforms that threaten their interests. In order to make 2017 the year for Tunisia’s economic recovery—for all of the country’s citizens—Chahed’s government will need to remain steadfast in its effort to enact reforms and avoid getting derailed by inevitable opposition. 

Karim Mezran is a resident senior fellow with the Atlantic Council's Rafik Hariri Center for the Middle East.

Elissa Miller is an Assistant Director with the Atlantic Council’s Rafik Hariri Center for the Middle East. 

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