RIYADH: Saudi Arabia announced yesterday it had boosted stipends and benefits for citizens to cushion the impact of economic reforms including the kingdom’s first ever taxes after an oil price slump. Most working Saudi Arabians are employed by the state and, like nationals in other energy-flush Gulf monarchies, have long benefited from a generous welfare system.
After the 2014 oil market crash, Saudi Arabia as well as the neighboring United Arab Emirates announced a five percent value-added tax on most goods and services which took effect at the start of this year. Saudi Arabia, the world’s top oil exporter, also roughly doubled gasoline prices on the same day as part of a broad reform initiative aimed at diversifying its economy.
In a move that aims to “soften the impact of economic reforms on Saudi households,” King Salman issued a royal decree late Friday ordering a 1,000 riyal ($267) monthly living allowance for military personnel and public servants for a period of one year. Student stipends will be increased by 10 percent, an official statement said. Allowances for retirees and social security recipients were also boosted.
The oil-rich Gulf has long been a tax-free haven for both high-income households and migrant laborers, who frequently rely on remittances to support their families back home. But countries in the region have introduced a series of austerity measures over the past two years to boost revenues and cut spending as the slump in world oil prices led to ballooning budget deficits.
Saudi Arabia has also intensified efforts to boost employment of its own citizens. The jobless rate among Saudis aged 15 to 24 stood at 32.6 percent last year, according to the International Labor Organization. Saudi Arabia posted an economic contraction in 2017 for the first time in eight years due to severe austerity measures. The coming year’s budget envisions record spending for the kingdom, a move meant to return the economy to positive growth.
Under Friday’s royal decree, troops serving at the border with Yemen, where Saudi Arabia is allied with the government in a war against Shiite rebels, will receive a bonus of 5,000 riyals ($1,333). The state will also cover the tax on any citizen’s first home purchase valued up to 850,000 riyals ($227,000). The statement said the measures were based on “information provided by” Crown Prince Mohammed bin Salman, the king’s powerful son who has steadily consolidated his grip on power since his shock appointment as heir to the throne in June. Income remains tax exempt.
The decree did not reveal the total cost of the new allowances, but it appeared to be considerably smaller than some past handouts by Saudi kings, and therefore unlikely to have much impact on economic growth or the state budget deficit. About 1.18 million Saudis are employed in the government sector and there are more than 1.23 million pensioners and beneficiaries of pension payments, the central bank says. That suggests a total package cost of about 23 billion riyals, according to Reuters calculations.
That compares to a projected 2018 deficit of 195 billion riyals, according to a budget plan released last month. A package of handouts marking King Salman’s accession to the throne in early 2015 was estimated to cost more than 100 billion riyals. Saudi Arabia will slow plans to eliminate subsidies for a wide range of energy products, according to a new long-term fiscal plan in the 2018 state budget. – Agencies