Tunisia’s Finance Law of 2022 indicates that the budgetary deficit has reached the level of 8.548 billion dinars. With revenues drastically lower than expenditures, the government has been urged to find short-term solutions. And, once again, debt financing from foreign lenders has been presented as the only solution. Facing the possibility of such an agreement, rounds of negotiations with the International Monetary Fund (IMF) have been ongoing since the beginning of the year. This is the same lifeline that has been presented to successive governments over the years, as a way to reduce the country’s budgetary deficit while enabling it to pay debt services. Non-governmental organizations, on the other hand, consider the debt-based solution to be a political choice and preference for « facility ». These NGOs recommend alternatives to lift Tunisia out of its downward debt spiral.

At the end of 2021, national and international NGOs including the Tunisian Economic and Social Rights Forum (FTDES), Al Bawsala and Oxfam launched a campaign to put an end to the country’s fallback preference for external debt financing, and to fight against the government’s austerity policies. The campaign published a petition laying out the shortcomings of policies adopted by successive administrations:

To get out of the crisis, previous governments have relied on loans as a solution to balance the deficit, and on austerity policies for making debt service payments, thus prioritizing the interests of the creditors to the detriment of Tunisians; as a consequence, the latter have fallen victim to increased rates of poverty and unemployment.

Tunisia’s debt, quantified

A Ministry of Finance report concerning the « preliminary results of budget implementation at the end of February 2022 » indicates that public debt outstanding has reached 106.3 billion dinars. This number contrasts with the 101.8 billion dinar estimation presented in the Amending Finance Law of 2021. Similarly, external debt reported at 63.4 billion dinars surpasses the 62.1 billion dinars previously estimated by the Amending Finance Law.

In its public debt report, the Ministry of Finance indicates (page 16) that in June 2020, the country’s debt represented approximately 80% of its GDP. In other words, money borrowed from overseas lenders represents 80% of wealth created throughout the year.

In concrete terms, the public finance crisis results, in part, from tax fraud, weak economic growth and increased debt service costs. This is the observation made by Al Bawsala’s public policy analyst, Kais Attia. Attia notes that IMF recommendations do not enable the government to create public investments and projects, which accounts for the slowed rate of economic growth. According to recent statistics from the National Institute of Statistics (INS), the growth rate rose by 0.7% from the first quarter of 2021, however, « this rate is in line with the economic growth regime in recent years » as the INS points out.

Tax fraud and evasion

Beyond this, tax evasion and fraud have proven to be persistent. This phenomenon primarily concerns the licensed professions. Unlike employees who are subject to direct taxation through withholding taxes, « a vast majority of industrial and commercial taxpayers take refuge under a flat-rate tax regime, which in essence constitutes a government-sanctioned fraud premium », indicates Al Bawsala in its fiscal justice report. This demographic shows a high record of failure to file: « In this category, 40% of taxpayers who are subject to income taxes fail to declare and thus make no fiscal contribution ».

According to the Association of Tunisian Economists (ASECTU), the failure to file rate is a staggering 50% among lawyers, 40% among accountants and 18% for dentists and dental surgeons. The heaviest fiscal burden, in other words, is carried on the shoulders of employees through the income taxes they pay.

Alternative solutions?

To remedy the financial and economic crisis, Al Bawsala proposes progressive taxation on income through the creation of new tax brackets. Income tax in Tunisia is currently organized into five brackets that range between a tax rate of 0% and 35%. Al Bawsala’s elaborate proposal recommends 18 brackets with tax rates ranging from 0% to 68% in order to ensure a more equitable division of income taxes.

Under the same plan, the NGO proposes an increased 25% corporate tax, plus a tax for « those who profit from the health crisis » including private clinics and wholesale companies selling medical equipment and medication. These reforms, Al Bawsala reports, are essential to achieving fiscal justice and alleviating the burden that has been imposed upon the middle class.

In the same vein, the association proposes the creation of a list containing essential goods exempt from the Value Added Tax (TVA), a tax on the wealthy as well as the allocation of revenues from a consumer tax to support the public health budget. The consumer tax pertains to products which are generally harmful to the health or to the environment, such as tobacco and wine, and luxury goods like yachts and cruise ships.

For the activists who launched the « Yezzi ma rhentouna » [You’ve put us into enough debt] campaign, policies adopted since 1986 in accordance with the IMF’s Structural Adjustment Facility (SAF) have shifted Tunisia’s economic model; Over time, the latter has moved towards a reduction in subsidies on essential goods, the freezing of salaries, and the privatization of public institutions. As a result, the government’s social role is reduced to a bare minimum, while measures promoted as a lifeline out of the current crisis continue to place increasing pressure on Tunisia’s middle class.