Taxing times across the Gulf as oil price drops

Kuwaiti oil and gas workers striking against salary cuts earlier this month. An unwritten agreement across the Gulf in which populations agree to delegate the running of the state to ruling families so long as there is no tax and they share the spoil
Kuwaiti oil and gas workers striking against salary cuts earlier this month. An unwritten agreement across the Gulf in which populations agree to delegate the running of the state to ruling families so long as there is no tax and they share the spoils is now under threat.PHOTO: EUROPEAN PRESSPHOTO AGENCY

Discontent stirs among citizens, especially youth, as spending and other cuts take hold

DUBAI • A cushy government job, cheap fuel, a mortgage-free home and a bit of five-star travel and luxury shopping were never too much to expect in the Gulf. Yet what had previously been taken for granted in the oil-rich region is being replaced by something more familiar to the Western world: spending cuts, taxation, a scarcity of jobs and even strikes.

There is discontentment among young populations rarely seen before as the countries come to terms with the collapse in energy prices blowing holes in budgets.

Kuwait had its first walkout by oil workers in two decades last week as 13,000 employees protested against cuts to pay and benefits. Disgruntled Saudis, presented on Monday with a royal blueprint for life after oil, are complaining about the cost of water.

Even in Qatar, the world's richest country, locals were told on Tuesday their petrol subsidies were being scrapped.

People aged under 30 make up more than half of the 44 million population living in the six Gulf monarchies. While wealth has barely been dented in Qatar or the United Arab Emirates (UAE), more of them elsewhere are having to get used to a future with less abundance than that of their forebears.

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The golden years when we used to spend the summers in Europe and most people owned two homes are long gone.

'' MR MOHAMAD AL KHARSAN, who has worked for the Kuwaiti state for about seven years. The 32-year-old lives with his parents because moving into his own home would shrink his monthly disposable income to just over 200 dinars (S$900).

There is an unwritten agreement in the Gulf where populations agreed to delegate the running of the state to ruling families so long as there was no tax and they shared the spoils, UAE commentator Sultan Al Qassemi wrote in February.

That is now under threat, he said. "The traditional Gulf social contract has never been more fragile."

Even talking about austerity would have seemed incredible as recently as a few years ago as Gulf sheikhdoms used their vast oil wealth to remake their region. They have built islands, financial centres, airports and ports that turned the Arabian desert into a banking and travel hub and the host of soccer's showpiece World Cup in 2022.

The International Monetary Fund (IMF) forecasts a budget deficit of 12.3 per cent of economic output this year for the six members of the Gulf Cooperation Council, which is led by Saudi Arabia.

Before last year, when oil prices sank 35 per cent, you would have to go back to the 1990s to find anything other than a surplus.

Economic growth is also slowing, and based on the latest IMF projections, governments and private businesses in Middle East oil-exporting countries would be able to create seven million jobs, about three million short of the expected number of labour market entrants.

Responses vary between countries, but all the monarchies are aware of the dangers of discontented youth. An ASDA'A Burson-Marsteller survey of 3,500 young people in 16 Arab countries published on April 12 found that most wanted subsidies to continue, while nearly half thought that any higher prices should apply only to expatriates.

The Saudis, who recorded a budget deficit of nearly US$100 billion (S$135 billion) last year, are planning a "restructuring of subsidies" while also developing a mechanism to provide cash to low- and middle- income Saudis who rely on them, Deputy Crown Prince Mohammed bin Salman has told Bloomberg.

King Salman fired the minister in charge of water after a bungled subsidy reduction led to astronomical bills. "We don't want to change the life of the average Saudi," the prince said. "We want to exert pressure on wealthy people, those who use resources extensively."

In Kuwait, Parliament voted to raise utility costs for foreigners and businesses for the first time in half a century. The homes of Kuwaitis would be exempted as more people feel the squeeze, at least compared with what they were used to.

Mr Mohamad Al Kharsan has worked for the Kuwaiti state for about seven years. Aged 32, he still lives with his parents because moving into his own home would shrink his monthly disposable income to just over 200 dinars (S$900).

For many of his generation, it is tough "making ends meet on a government job salary", he said. "The golden years when we used to spend the summers in Europe and most people owned two homes are long gone."

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A version of this article appeared in the print edition of The Straits Times on April 28, 2016, with the headline 'Taxing times across the Gulf as oil price drops'. Print Edition | Subscribe