Tunisia: How Did COVID-19 Become an Opportunity to Satisfy Capitalist Greed?

2021-03-24    |   

Tunisia: How Did COVID-19 Become an Opportunity to Satisfy Capitalist Greed?

As COVID-19 spread, liberal discourse escalated and transformed the crisis into an opportunity to rescue capitalist companies from another crisis that has existed for years. COVID-19 was not a cause of this crisis but merely the spark that illuminated it clearly. This discourse was clearly expressed by the editorial that the British newspaper The Times published on 19 March 2020:


“There are vital goals that policymakers can realistically aim at, however. First, they must prevent this downturn from turning into a depression. And second, they need to demonstrate that free markets and open trade are still the best economic model for creating wealth and bettering the lot of humanity. If they fail in these aims, then dangerous ideas, such as trade protectionism and state socialism, are likely to gain unmerited plausibility.”


The “economic and social” measures adopted in Tunisia, which were announced by former prime minister Elyes Fakhfakh, followed this trend. As marketed, the speech he delivered at the beginning of the pandemic (21 March 2020) was supposed to be an explanation of the measures stemming from the “total lockdown” decision that the president had announced. It was no coincidence that the private television channels preempted this “explanation” by providing a platform for some figures from the finance and commerce lobbies to talk at length about their “sacrifices” and the “lockdown threatening their businesses”. On this basis, they contended that a state bailout is warranted while simultaneously refusing to make any contribution to mobilizing the resources needed to combat the crisis. Hence, the measures that the government adopted were, for the most part, to protect their interests and satisfy their greed.


Vulnerable Groups Pay the Pandemic’s Highest Cost


In the aforementioned speech, after a drawn-out introduction about the “gravity of the crisis”, its “effects on the economy”, “collective solidarity”, and “national unity”, the prime minister presented a collection of “economic and social measures” estimated to cost a total of TND2.5 billion [TND2.8 equals approximately USD1]. This article will review these measures, exposing the phoniness of the government discourse and the flimsy premises concealed behind it.


The “social measures” included – besides deferring bank loan installments by six months for workers who earn no more than TND1,000 per month – allocating TND450 million divided between TND300 million in aid for displaced workers and TND150 million in exceptional provisions for vulnerable groups, low-income earners, and people with special needs.


It was no coincidence that when these measures were presented and marketed, the focus fell on the total amounts (TND300 million and TND150 million). These figures seem enormous to laypeople not accustomed to dealing with figures, implying a colossal government effort to protect vulnerable groups. However, the details reveal that the provisions allocated are mere breadcrumbs, tranquilizers that the government is only using for propaganda purposes.


The TND150 million allocated for vulnerable groups, low-income earners, and people with special needs are divided between assistance for 623,000 low-income families at a rate of TND200 per family and assistance for 26,000 destitute families at a rate of TND50 per family. The amount allocated per family seems very meager, especially as the crisis and quarantine measures will necessarily produce additional expenses because of monopolization, rising prices, and the cost of preventive supplies. While the TND200 afforded to low-income (i.e. unstable income) families seems relatively acceptable, these families will lose their (already limited) incomes because of the crisis and be forced to fulfill all their needs using only this assistance. Most importantly, this assistance will be granted only once amidst a prolonged crisis.


From another angle, while TND300 million were allocated in assistance for displaced workers (i.e. workers unemployed because of the shutdown of private businesses), no details were provided about the methodology for determining this amount, the mechanisms for distributing it, or the assistance allocated for each displaced worker. Logically, in such cases the methodology should involve, at the outset, determining the amount needed to secure the minimum livelihood for the worker and their family (e.g. by relying on the minimum guaranteed wage). This amount should also represent the monthly benefit or assistance to compensate for the worker’s salary throughout the unemployment period. Hence, the total provision should be determined afterward – not predetermined – based on the number of displaced workers and the period of their unemployment. France, for example, adopted the mechanism of “partial unemployment” (chômage partiel), which grants every worker whose employer ceased operating because of COVID-19 a monthly benefit equaling 84% of their net monthly wage. The businesses pay the benefit and are later compensated by the state. As for the total amount of compensation, it depends on the number of workers displaced and the length of their unemployment.


In Tunisia, the private sector employs approximately 1.5 million workers. However, the government did not specify the mechanisms for distributing the amount allocated, the benefit granted to each worker, or the period for which this benefit is received, thus raising serious issues concerning the feasibility of the total lockdown. For example, if the benefit for each displaced worker equals the minimum wage (approximately TND400) and is for only one month, then based on the total amount allocated (TND300 million) the number of displaced workers becomes 750,000 and the other 750,000 are forced to continue working, putting themselves and their families at risk.


Misplaced Government Generosity


The “economic measures” directed at businesses included a preliminary package that consists of deferring tax payments for three months, deferring bank loan installments for six months, enabling VAT refunds within one month, and exempting businesses with government contracts from late penalties for up to six months. These measures generally seem acceptable as they provide businesses the necessary liquidity to continue operating without a large impact on the state budget’s resources. However, they should have been subject to certain conditions. Most importantly, only small and medium-sized businesses – given their vulnerability and limited financial resources – should benefit from them. All businesses with tax or customs debts should be excluded, and a mechanism should have been established to schedule the payment of overdue taxes and installments after the deferment period. Small and medium-sized businesses would therefore not be forced to pay their dues over a short period that complicates their financial situation.


The second package of measures, which was directed specifically at big businesses, is more important and dangerous, so I will address it in greater detail.


The first measure consists of scheduling tax and customs debts over seven years. According to estimates from the Ministry of Finance, these debts amount to TND10 billion (i.e. 21% of the total state budget and 31% of own-source revenue for 2020) and four times the size of the provisions allocated for all the measures (TND2.5 billion). The question here is, what does this measure have to do with the COVID-19 crisis? Is it the pandemic that prevented these businesses from paying their tax and customs debts? Of course, the COVID-19 crisis has no connection to all these debts, which have been due for years and reflect these lobbies’ evasion of their commitments to the state. Moreover, were it not for their evasion, the state would have been better able to support the public service (public health in particular), and we would have been better able to confront these exceptional circumstances. For example, we are facing this crisis with a limp public health sector (400 ambulances and 331 intensive care beds) while the lobbies owe TND10 billion. In other words, their evasion is one of the crisis’ causes rather than its consequences. Under these exceptional circumstances, the tax evaders should have been forced to pay a fraction of their due debts, but the government of the lumpencomprador saw otherwise and rewarded the tax-evasion lobbies by rescheduling these debts. In reality, this measure merely encourages tax evasion. Moreover, extending the rescheduling period to seven years is nothing but preparation for canceling these debts, as the lumpencomprador has been demanding for years.


The second measure consists of creating a TND500 million guarantee line to enable businesses to receive new loans, which again raises many issues. Firstly, the size of the new loans should be determined based on businesses’ financial needs, i.e. after the crisis has been overcome and its effects assessed. There is no logical basis for predetermining it, and doing so could open the way for manipulation and corruption and for businesses to exaggerate their financial needs. Secondly, public institutions were excluded, and no measure was allocated for them, as though they are immune to the crisis. Thirdly, these loans will be directed toward maintaining operations, so they will not lead to investments or the creation of wealth or jobs. Fourthly, by enabling businesses to obtain loans guaranteed by the state, this measure calls to mind the enormous volume of loans that business owners plundered and were ultimately repaid from the state budget (i.e. at the taxpayers’ expense) under the guise of recapitalizing the public banks. Finally, according to central bank data, of the TND60 billion in loans granted to the private sector in 2018 (versus just TND5 billion for public institutions), major corporations receive approximately TND35 billion. In other words, five influential families obtained 57% of the bank loans, whereas the agricultural sector, despite its importance, obtained just 4%. Hence, the same influential families will certainly take the largest share of this guarantee line. Of course, as always, these loans will not be repaid, so the vulnerable and impoverished segments of society will bear the cost.


The third measure is the creation of a fund of TND 700 million to structure and capitalize the affected businesses. This measure raises the same issues concerning the exclusion of public institutions and the predetermination of the scope of the damages. Moreover, it does not establish a mechanism for assessing these damages, specify the party responsible or period of reference for this assessment, or establish specific conditions for accessing it. Hence, it opens the door for all kinds of favoritism, corruption, and manipulation of public wealth. Worse, another mechanism for supporting private investment, namely the “investment law”, already exists. The grants afforded under the guise of encouraging investment are estimated at TND2.85 billion each year. Hence, the total for just the period from 2011 to 2019 comes to TND 25.65 billion, i.e. approximately 42% of all the debt that the state borrowed during the same period. This does not take into account tax exemptions, the state’s coverage of social charges, the development of the industrial regions, and other privileges and services. Moreover, 10% of companies (major corporations and foreign companies) received 90% of the grants. Only crumbs were left for small businesses, which contribute a larger share of employment and whose production serves the needs of Tunisians. Overall, the incentive rate has exceeded 45%,[1] i.e. approximately half of what is counted as private investment is actually funding from the state. Despite all these incentives, the investment rate has not risen, and the private sector has made no serious contribution to job creation. This is because of the parasitic nature of the lumpen-comprador, who profit primarily from grants, privileges, and tax exemptions. This situation will not change with the creation of this new fund: the same lobbies and influential families will take the largest share, and the fund will become another privilege on top of the privileges in the investment law.


The fourth measure enables businesses to reassess, in their balance sheets, developed and undeveloped properties per their real values. While this measure may seem “technical” and as though it will not affect the state budget, it may actually be one of the most dangerous of the measures adopted and one that most encourages tax evasion.[2]


This measure is a masked exemption of these businesses from their tax obligations. In reality, it is directed specifically at the banks, insurance companies, major industrial companies, and malls that possess properties valued in the hundreds of billions if not trillions. One can imagine the amount of profit that these lobbies will amass and, conversely, the losses that the state budget will incur. From another angle, this measure is absolutely unjustifiable because neither the properties’ original value nor their current value has anything to do with the COVID-19 crisis. At its core, this measure is merely an exploitation of the crisis to enable the lobbies and influential families to amass profits at the expense of the state budget and, ultimately, impoverished and marginalized groups and parties.


Finally, the third measure allows [so-called] totally exporting companies to raise the percentage of their products that they sell on the domestic market from 30% to 50%. Firstly, note that the difficulties these companies are experiencing are not linked to the COVID-19 crisis but to the escalation of competition and decline in demand in the global markets due to the crisis that the capitalist system has been witnessing for years. Hence, this measure is merely an exploitation of the COVID-19 crisis to allow these companies to liquidate their surpluses in a manner that could negatively affect businesses that produce for the local market (small and medium-sized businesses). These companies are exempt from profit tax, so they have a competitive advantage. From another perspective, these companies are divided into two types – onshore and offshore – and the latter are not obliged to bring hard currency resulting from their exports into the country and its banks. Moreover, under the investment law, they are free to transfer their profits abroad, including those made in the domestic market. Hence, raising the rate at which these companies sell in the domestic market is, besides a strain on local businesses, a drain on currency amidst exceptional circumstances in which the state needs to ensure the supply of essential goods, particularly food and medical products.


The “Easy” Financing of the Government Measures


The essence of the government measures and their bias toward influential lobbies is further exposed by the issue of financing: How will the TND2.5 billion allocated as extraordinary provisions not programmed in the state budget be financed?


An extraordinary tax on big businesses, particularly banks, insurance companies, and malls, should have been created. Despite the economic crisis that the country has been experiencing for years, these businesses are making massive profits because of the privileges they have enjoyed and because economic policies and laws have mostly been directed at protecting their interests. However, the government chose the approach of “begging” and relying on “donations”. The process turned into a spectacle in which some people endeavored to polish their reputations by donating sums many times smaller than the amount they previously plundered from the state budget. Whatever the case, the state is not a charity and must base its programs on clear and stable resources, not donations. However large these donations may be, they will not meet needs, so the question of how to finance all the measures will inevitably arise. Given the state’s clear bias toward finance and commerce lobbies, the solutions are limited to freezing or deducting from wages (a solution for which trade union bureaucracy has paved the way), disposing of some public institutions, and raising indirect taxes (leading to the deterioration of regular Tunisians’ purchasing power or further debt, which has naturally reached frightening rates). Former prime minister Elyes Fakhfakh’s answer was generally clear: he concluded his speech by saying that once the crisis passes, we will be in a stronger position to carry out all major reforms. These reforms are nothing but the diktats that he promised the global financial institutions to implement.


Clearly, in contrast to the breadcrumbs allocated for workers, marginalized groups, and protecting Tunisians’ lives in general, the government was extremely generous to big businesses and influential lobbies. Hence, “national unity” and “social solidarity” are mere slogans concealing its complete bias toward these lobbies at the expense of the vulnerable and impoverished segments of the people. Moreover, in the fight against COVID-19, protecting Tunisians’ lives should be the main goal for which all provisions are allocated. While it is true that this crisis has had frightful economic effects and harmed some businesses, this issue could have been deferred until we have addressed the pandemic and emerged from it. However, the government saw otherwise, allocating the bulk of the provisions to “protecting businesses” and granting the lobbies a collection of privileges not justifiable on the basis of the COVID-19 crisis. Both the previous and current governments have ultimately done nothing but exploit the crisis to satisfy the greed of the lumpen-comprador, leaving the protection of Tunisians’ lives to fate.


This article is an edited translation from Arabic.


[1] Investment incentives constituted 45% of the total value of investments in the private sector in Tunisia, which reached TND1.506 trillion by the end of September 2020 according to the data in the 2020 finance law, the government measures during the COVID-19 pandemic, and the Tunisian Investment Authority’s data.

[2] To understand how allowing the reassessment of developed and undeveloped properties leads to tax exemption, let us assume, for example, that a company launched in 2010 and owns a property that was worth TND100,000 at that time. In its financial balance sheets, the company records “yearly depreciation” under expenses. Let us also assume that the depreciation of this property extends for ten years, i.e. the company records TND10,000 per year as an expense stemming from the property. In 2020 (after ten years), the property’s total depreciation period ends. Consequently, the company does not record, in its balance sheets, any expense stemming from the property’s use, so its annual profit increases by TND10,000 (assuming that the other components of the balance sheet do not change). If the company is subject to a company profit tax rate of 35%, then it will pay an additional tax of TND3,500. If the company decides to sell the property, it will make an extraordinary profit equal to the sale price minus the net book value (now zero after ten years). Hence, if the sale price is TND200,000, the extraordinary profit will be TND200,000 minus zero, i.e. TND200,000, and the company pays a profit tax at the same general rate (35%), i.e. TND70,000.


If the company is allowed, under this measure, to reassess the property per its true value and that value is TND200,000 in 2020, then the property value that can be recorded in the balance sheet becomes TND200,000. Consequently, the company can extend the depreciation period and record annual expenses of TND10,000 for another ten years, freeing itself of TND3,500 in tax each year. If the company decides to dispose of the property, the extraordinary profit (i.e. the sale price minus the net book value) will be TND100,000. Hence, the company pays TND35,000 in tax (35% of the TND100,000 in extraordinary profit) instead of TND70,000 in the absence of this measure. While the Ministry of Finance’s memorandum detailing this measure did stipulate non-disposal, it did not specify the period for which this condition applies.

Share the article

Mapped through:

Articles, Economy, Economy, Industry and Agriculture, Inequalities, Discrimination and Marginalisation, Labor and Unions, Private Sector, Tunisia, Unions and Syndicates

For Your Comments

Your email address will not be published. Required fields are marked *