Algeria - Budget

Budget

The government's commitment to nurturing a self-sufficient economy caused its investment expenditure to exceed 50 percent of total current expenditures in the 1970s and the first half of the 1980s. Most of the nontax revenue came from the hydrocarbons industry, which constituted the largest single source of income and provided almost 65 percent of the country's total revenues until the early 1980s. But the oil price crash of 1986 forced the government to revise the budget to bring hydrocarbon revenues down to almost 30 percent of the total. The Journal Officiel showed the percentage of oil and gas revenues dropping from 44 in the 1985 budget to 32 in 1986 and to 23 in the following three years. These figures continued to vary as the government introduced new forms of taxation, such as corporation, income, road, and property taxes. As of early 1993, the most recent tax to have been introduced was the value-added tax of April 1992, which established a 7 percent tax on strategic goods (e.g., electricity), 13 percent on reduced tariff products (e.g., construction materials), 21 percent on regular rate goods (e.g., automobiles), and 40 percent on luxury items.

The government continued to face the dilemma of reconciling an austerity policy designed to reduce a huge foreign debt with a commitment to sustain a socialist economy with a ferocious appetite for public expenditure. Rising tax receipts helped the government cut investment spending by 26 percent in 1986. Continuation of the austerity program reduced the fiscal deficit by 50 percent between 1987 and 1989. Fortuitously, increased hydrocarbon revenues in 1989 reduced 1988's deficit of more than US$4.4 billion to just over US$1.0 billion.

Historically, the proportion of investment expenditure received by each economic sector has varied from year to year. The variation resulted from such factors as the underlying philosophy of each development plan and the government's proclivity toward heavy industries. A clear trend has favored either basic infrastructure projects or education, health, and other social services. The government could not ignore the latter areas without exposing itself to serious public criticism or even social unrest. Education, for instance, received the lion's share of current expenditures in 1989 (26.9 percent) and in 1991 (25.8 percent), whereas defense was limited to 9 percent and 8.8 percent for those years. The construction industry exemplified a neglected sector in early development plans. The construction sector later caught the government's eye, however, because of its socially explosive impact on the severe housing shortage, about which less-advantaged Algerians had been complaining bitterly.

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