Lebanon's first state budget in 12 years aims to reduce deficit

BEIRUT (Reuters) - Lebanon's first state budget in 12 years aims to narrow the deficit to 8.7 percent of national output this year and increase revenues almost 10 percent by improving tax collection, the finance minister said on Thursday.

Successive governments have failed to pass annual budget plans due to a string of political crises since the 2005 assassination of former prime minister Rafik al-Hariri.

Rafik's son Saad al-Hariri, who became prime minister in November, has made the passage of a state budget one of his main aims in office.

Finance Minister Ali Hassan Khalil said the budget, which was approved by the cabinet on Monday, projects spending of 23.67 trillion Lebanese pounds ($15.7 billion) this year and revenues of 16.38 trillion pounds.

Based on government projections, that would leave it with a narrower deficit than last year's 9.3 percent of national output.

"On the level of revenues, the budget depends in the first place on improving collection and tax administration ... instead of subjecting taxpayers to new taxes," Khalil said.

"Our expected growth ... should reach 2 percent, and it is a percentage of growth that is still limited and in need of a set of measures to boost or improve it," Khalil said.

The budget still needs to be approved in parliament.

An International Monetary Fund report warned in January that Lebanon needed a "sustained and balanced fiscal adjustment", without which its public debt, already one of the highest in the world compared with its economic output, would continue to rise.

Khalil said an examination of taxes paid by banks showed that an additional 1.150 trillion pounds could be collected on their profits. He indicated this would take place through the application of existing tax laws rather than via new levies.

He said spending would increase in the health, social and education sectors, and additional spending would go on infrastructure and equipment for the army. The budget did not include new taxes that would hit the poor, he added.

Nassib Ghobril, chief economist at Byblos Bank, said the promised crackdown on tax evasion was welcome but called for the full publication of the draft budget announced on Thursday.

"If they do reduce evasion, this is a decision in the right direction, but it needs to be accompanied by concrete steps, because of market scepticism about a real political will to fight tax evasion," he said.

Earlier this month, parliament approved tax increases including a 1 percent point rise in the sales tax as part of efforts to agree a deal on a public sector pay rise.

Reports of tax hikes brought several thousand protesters into central Beirut earlier this month.

Khalil indicated that the government may rethink tax increases to finance the public sector pay rises.

"We are ready to review some of the tax measures, which will perhaps reflect positively on the lives of people," he said.

(Reporting by Laila Bassam; Writing by Tom Perry; Editing by Hugh Lawson)