Omar Al-Ubaydli is a Bahraini economist and a columnist for The National
December 25, 2024
As libertarian Javier Milei celebrates a year since assuming the Argentine presidency, other countries may be studying his experience closely. Fiscal challenges are a problem that all have recently faced, or will face in the future, and Mr Milei’s brand of heterodox shock therapy offers policymakers with a new perspective on how to balance the books.
At the turn of the 20th century, Argentina was one of the richest countries in the world in terms of per capita income, and the future was bright for the South American state. However, over the course of the past 130 years, it has become the poster child for many economists for how political instability, corruption, and economic mismanagement can precipitate a rapid decline in living standards.
In 2023, Argentina’s public debt was around 100 per cent of its GDP, consumer prices were growing at almost 300 per cent annually, and GDP per capita was approximately at its 2008 level. While these figures – especially the inflation – represented a recent nadir in terms of economic performance, the reality is that Argentina has been struggling economically for decades, with the new millennium alone witnessing three sovereign debt defaults.
A homeless man sleeps at Plaza de Mayo square in front of Casa Rosada presidential palace in Buenos Aires. The government managed to reduce inflation from 200% to 166% year-on-year as of November 2024. AFP
Given the historical dominance of left-leaning populists in Argentina’s political landscape, and the cumulative fatigue that the population felt toward the failure of their politicians to deliver economic prosperity, the stage was set for a radical alternative. Mr Milei campaigned effectively, conveying a distinctly libertarian economic plan revolving around deregulation, liberalisation and shrinking government. One year on, he has balanced the budget on the back of a 30 per cent decrease in government spending, inflation has decreased sharply, and the economy is beginning to attract foreign capital.
In 2023, a mere 24 per cent of Argentines expressed confidence in their government, while 73 per cent disapproved. Mr Milei succeeded in raising the first figure to 43 per cent, and shrunk the disapproval rate down to 53 per cent.
Before describing the somewhat jarring way he delivered these improvements, it is worth noting why so much of the world should be paying attention. Up until the early 20th century, orthodox government policy was to balance the budget unless extreme circumstances such as wars arose.
However, following the Great Depression in the early 1930s, economic thinking and political systems changed in tandem, leading to a situation where governments were comfortable perennially realising budget deficits and seeing their public debts rise seemingly without constraint.
The unsustainability of such arrangements is self-evident, but the negative impacts of ignoring the risks differ in the speed at which they materialise. Countries that were forced to default, such as Greece and Sri Lanka, experienced a loss of confidence in the economy and, with it, rising poverty.
Larger economies, such as Japan and the US, remain in the risky situation of having high levels of debt to GDP but for the time being they continue to be able to kick the proverbial can down the road. In the case of the Gulf countries, the 2014 oil price crash reminded all six a taste of diversifying their fiscal revenues and economies away from hydrocarbons.
Fiscal sustainability has much in common with its environmental cousin: the impact of imprudence is rarely immediate, and it takes a collective sacrifice for success. Humans are not very good at co-operating when the benefits are amorphous and will be reaped many years later, setting the stage for societies to delay the necessary reforms whatever the governing political system.
In Argentina’s case, society’s natural antipathy toward fiscal belt-tightening was overcome by the collective exasperation at previous failures. This allowed Mr Milei to effect radical policies, such as closing 16 out of 24 ministries, curtailing energy and transport subsidies, the elimination of rent controls and the dismissal of 24,000 federal employees. He plans to eliminate 90 per cent of existing taxes and cut an additional 50,000 federal government jobs.
One year on, he has balanced the budget on the back of a 30 per cent decrease in government spending, inflation has decreased sharply, and the economy is beginning to attract foreign capital
For countries – including many in the Middle East, where a great deal of national spending lies in the public sector – there is great value in studying Milei’s experiment, both operationally and in terms of securing the public’s support.
Businesses in the region regularly complain about excessive red tape, sometimes spawned by having a surfeit of ministries operating without a clearly defined mandate. Of course, the risky nature of drastic reforms to public sector spending makes it even more beneficial to begin by closely observing Argentina’s trail-blazing.
The large investments that countries such as Saudi Arabia and the UAE have made in the energy transition demonstrate the government’s ability to overcome disincentives and lead the way in adopting environmentally friendly policies. This bodes well for their ability to make bold fiscal decisions when required, as occurred when Saudi Arabia raised value-added tax from 5 per cent to 15 per cent during the Covid-19 pandemic.
One of the best things policymakers anywhere can do is harvest knowledge from the experiences of other countries. Dramatic moves can offer more acute lessons. In this regard, through his aggressive reforms, Mr Milei is serving not just the Argentine people, but the whole world.
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TWISTERS
Director: Lee Isaac Chung
Starring: Glen Powell, Daisy Edgar-Jones, Anthony Ramos
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Use unique usernames and passwords while enabling multi-factor authentication.
Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
Avoid suspicious social media ads promoting fraudulent schemes.
Only invest in crypto projects that you fully understand.
Critically assess whether a project’s promises or returns seem too good to be true.
Only use reputable platforms that have a track record of strong regulatory compliance.
Store funds in hardware wallets as opposed to online exchanges.
Islamophobia definition
A widely accepted definition was made by the All Party Parliamentary Group on British Muslims in 2019: “Islamophobia is rooted in racism and is a type of racism that targets expressions of Muslimness or perceived Muslimness.” It further defines it as “inciting hatred or violence against Muslims”.
The story of Edge
Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, established Edge in 2019.
It brought together 25 state-owned and independent companies specialising in weapons systems, cyber protection and electronic warfare.
Edge has an annual revenue of $5 billion and employs more than 12,000 people.
Some of the companies include Nimr, a maker of armoured vehicles, Caracal, which manufactures guns and ammunitions company, Lahab
The Voice of Hind Rajab
Starring: Saja Kilani, Clara Khoury, Motaz Malhees
Director: Kaouther Ben Hania
Rating: 4/5
Tips on buying property during a pandemic
Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.
While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.
While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.
Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.
Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.
Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.
Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.
Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
The specs: Fenyr SuperSport
Price, base: Dh5.1 million
Engine: 3.8-litre twin-turbo flat-six
Transmission: Seven-speed automatic
Power: 800hp @ 7,100pm
Torque: 980Nm @ 4,000rpm
Fuel economy, combined: 13.5L / 100km
Global state-owned investor ranking by size
1.
United States
2.
China
3.
UAE
4.
Japan
5
Norway
6.
Canada
7.
Singapore
8.
Australia
9.
Saudi Arabia
10.
South Korea
The specs
Engine: 2-litre 4-cylinder and 3.6-litre 6-cylinder
