Something potentially important just happened in Egypt. President Hosni Mubarak personally announced that a planned new real estate tax, expected to come into effect this year, would be postponed until after upcoming elections. This came after the bill had provoked a furious outcry in both parliament and the press. While the decision has garnered plenty of hot air and a fair amount of righteous indignation, we haven’t seen much analysis of the decision’s longer term implications, which is what we aim to provide.
At first TBE thought it was a typical case of the upper-classes whinging about new taxes, not really a surprising development in Egypt or anywhere else in the world. After all, the new tax burden would have been quite low: No payment for properties evaluated at less than LE500,000 (about $90,000), LE300 (about $55) for properties valued between LE500,00 and LE1 million, with the highest possible tax reaching just more than LE1000, for properties valued near LE5.5 million or more (approximately $1 million). (All of these figures might be off to a greater or lesser degree, but they are close enough to demonstrate the underlying point, that the new tax isn’t particularly oppressive.)
After speaking to a friend whom we would characterize as solidly middle class and politically on the left but who nonetheless rejected the new tax increase out of hand as an undue burden on his family (Can we get a soul clap for Mr. AG?) and thinking a bit more about it, we still see it as a whiny response to a small increase in the tax bill, but we wonder if it also represents something potentially more important. It was the first instance that we know of (and we don’t know that much, so could be way off base) in which a broad coalition consisting of the upper and middle classes came together to stymie a government tax increase in such a public way, even if only until a pliable new parliament (and old president) are firmly re-ensconced in their positions.
Why It Matters
Like all governments, Egypt’s needs money. Conventional wisdom says subsidies on food, services and other goods are untouchable, or only to be played with on the margins. We tend to believe the conventional wisdom in this case, though it does seem as if dismantling the social safety net, via healthcare “reform,” is tentatively on the agenda.
We are emphatically not saying that the reaction to the real estate tax and the ensuing government climb-down represent anything approaching the “political awakening” of the middle or upper classes. However, we do believe that lessons will be drawn from this (as yet unconcluded) episode. The government will eventually be forced to levy new taxes on the classes that occupy the relatively to extremely well off end of the spectrum. How those classes react when putting off new taxes is no longer a possibility might go a long way to determining Egypt’s political future.
Admittedly, forecasting a Brotherhood takeover or military intervention in politics is far more interesting and exciting than forecasting political change based on the possibility of coalitions aligned against new taxes demanding representation in exchange for acquiescence. One could also argue that these classes are already well-represented, pointing to the fact that the tax was postponed. And we suppose we’ll have to wait until after the elections to see if the government passes a law without easy-to-exploit loopholes, such as the primary residence exemption Mubarak mentioned, which would probably put any family with a clever accountant outside its reach.
The imperative to raise revenues will remain, however, and eventually the government will be forced into a faceoff with either the poor and working classes or the more well-to-do, with unpredictable results. We’re not sure whether putting off the inevitable will make the confrontation “all the more explosive,” which is how we’re tempted to finish this post, but we do think that, as a long-term trend, government relations with the upper and middle classes are at least as likely to affect Egypt’s patterns of governance as are either the succession and the military scenario or the Brotherhood scenario, and thus deserves more and better analysis than we’re able to provide here.