It’s economic stimulus or spending cuts?

Ali Al Matani –
ali.matani2@gmail.com –

A lmost a year ago, at the beginning of the economic crisis, I wrote about the importance of stimulating the country’s economic growth, increasing spending, imposing fees and taxes on certain segments of society and charging fees for government services or designating them as commercial services, while giving special consideration to the weaker sections of society.
Necessary actions that could address structural imbalances caused by reduced oil revenues were not taken, and the government efforts focused on spending cuts, instead of improving non-oil revenue, liberalising petroleum products prices and imposing some fees on services.
Cutting government spending is not a solution. It rather creates another problem: economic downturn, the features of which began to reflect in the markets in the form of redundancies, difficulties faced by companies to get government business and other economic consequences, as the government is the primary spender in the country and as the private sector depends on government spending to a large extent.
On the other hand, the economic stimulus plans increased spending or keep it at the previous levels with raised taxes and indirect charges on some optional services that are demanded by certain groups in society so that the effects of the economic stimulus are not as widely felt as caused by spending cuts.
The government initiatives aimed at increasing non-oil revenues were inadequate, compared with the declining oil revenues. However, what is considered as credit, in favour of His Majesty’s government here, is that its actions were merciful towards the citizens, in comparison to measures taken by some neighbouring countries, and the significant differences in resources and obligations between the Sultanate and other Gulf states.
The Omani citizens’ needs and concerns were taken into account, regardless of the pains of the crisis.
For example, the revised fees on some services were not as great as expected. The said amended fees are embodied in the removal of subsidies on fuel, and not in increasing its price, and there is a vast difference between these. Also, the increment in the cost of bringing in foreign labour force is not for the purpose of increasing financial income, but it is a practical step to reduce foreign labour force in light of the growing national labour force, besides a slight increase in the cost of some services that have an impact on the lives of citizens.
The government seems to achieve a balance between the adoption of some policies targeting increased tax and fees on the population, and the treasury’s need for direct money for the development of priority areas. So the government has taken a gradual policy action in dealing with the crisis until it becomes clear about what needs to be done in the coming period in light of the current rapid changes.
Also, attention should be directed at the importance of economic database for the purpose of developing tax policies, and at how to apply tax collection mechanisms, and limit tax evasion.
So, there are many aspects that are incomplete or not ready or sufficient to keep pace with the developments, such as creating awareness in the community about the importance of developing a more assertive behaviour in dealing with reality, taking into account some of the community groups that require special considerations on account of their living conditions.
Nevertheless, economic stimulus is still the best in the long run, not only to revive the market, but to take the community from the status of dependency to self-reliance and being capable of actively contributing to the country’s development within the framework of the policies adopted by the government. Eventually, this will bring about an understanding of the changes.
So there is no choice but to spread awareness and emphasise the fact that the steps taken by the government are in the interests of the homeland and its citizens.
Of course each policy has its positive and negative sides. So the application of economic stimulus in the country may not be easy in a society that is still in transition from the care state to the luxury state. Therefore, the demand for tightening belts and self-reliance may need some time and more favourable circumstances to be accepted.
We hope for favourable economic conditions for everyone in the next phase. But that does not lessen the importance of getting prepared for the future to address all its challenges and difficulties. We must understand that every decision taken is eventually for the good of us and our homeland, be that economic stimulus or cut in unnecessary spending.