Re­shap­ing the UAE econ­omy for 2050

The Pak Banker - - OPINION - Ab­dul­nasser Al­shaali

IF you are look­ing for an in­tro­duc­tion, there is none this time.Straight on to the facts by an­swer­ing this ques­tion: How should the UAE's econ­omy look like in 2050? The UAE should fo­cus on re­duc­ing un­needed ex­penses and de­vi­at­ing from oil rev­enues by in­creas­ing rev­enues from other sources. The below ex­plains how that could be achieved.

Taxes and other fees are es­ti­mated to now ac­count for 35.4 per cent of rev­enues (CIA Fact Book), with taxes be­ing 0.4 per cent (World Bank). Taxes should make at least 30 per cent of the UAE's rev­enues by 2050.* VAT (value added tax) should be in­tro­duced at some­where be­tween 3 per cent and 5 per cent, and then main­tained at that level to not curb con­sump­tion or un­der­cut tourism when VAT pro­ceeds are not re­funded. The only ex­cep­tion here would be taxes on al­co­holic drinks, to­bacco, as well as foods and drinks deemed un­healthy.* Cor­po­rate taxes, re­gard­less of the per­cent­age, wouldn't make much of a dif­fer­ence once ad­di­tional coun­tries sign the Avoid­ance of Dou­ble Tax­a­tion Agree­ment.* There should be no in­come tax.* There should be a gaso­line tax. Though it would be bet­ter to adopt a mech­a­nism that gen­er­ally sta­bilises gaso­line prices - min­i­mally sub­sidised when too high and taxed when too low. A gaso­line tax would sig­nal the econo- my's of­fi­cial take-off from be­ing an oil ex­porter. There­fore, the sub­sidy­tax mech­a­nism should equate gaso­line pump price with coun­tries that are net im­porters of oil.* A car­bon emis­sion tax should be levied on in­dus­tries.* A re­mit­tance tax with per­cent­ages tailored in ac­cor­dance to each in­come bracket. The tax can be levied on ex­change houses that could choose to pass it on to cus­tomers or not. o There should be no wa­ter and elec­tric­ity sub­si­dies by 2050. Dubai has a tar­iff cal­cu­la­tor, which shows, pre­sum­ably, that only low res­i­den­tial and com­mer­cial con­sump­tions of elec­tric­ity - 0-2,000 and 2,001-4,000 - are sub­sidised, with tar­iff rates go­ing up as con­sump­tion in­creases.

* Houses should be en­cour­aged to in­stall so­lar pan­els, not only to man­age their con­sump­tion ef­fi­ciently, but to also sell their ex­cess en­ergy back to the grid. Monthly pay­ment will be the net of their con­sump­tion and pro­duc­tion. * There should be a cut-off date for pen­sion pay­out - life ex­pectancy mi­nus re­tire­ment age. Con­tri­bu­tion per­cent­ages paid by em­ploy­ees should be in­creased.* Vol­un­tary schemes should be in­tro­duced and care­fully su­per­vised.* Grad­ual in­clu­sion of non-UAE na­tion­als work­ing in the pub­lic sec­tor into state pen­sion fund should be con­sid­ered - Sin­ga­pore is an ex­am­ple. This would en­cour­age peo­ple to re­tire in the UAE.This needs to be done af­ter a thor­ough anal­y­sis and un­der­stand­ing of the UAE's labour eco­nom­ics, tak­ing into con­sid­er­a­tion long-term prospects of the jobs mar­ket and the level of Emi­rati­sa­tion that the UAE wants to achieve in the pri­vate sec­tor. o Part of net prof­its from sov­er­eign wealth funds could be used in UAE's bud­get cal­cu­la­tions, with the re­main­der be­ing re-in­vested into the funds. The model should be con­structed in a way that could sus­tain the funds in a time where ex­cess oil rev­enues are not be­ing de­posited into the funds.An ideal sce­nario would be to do with­out with­draw­ing from the funds and to keep grow­ing them.

o By 2050, the UAE's dirham should not be pegged to the dol­lar as oil will rep­re­sent 0 per cent of the UAE's econ­omy. In­stead, the UAE should peg its cur­rency to cur­ren­cies of its top 10 trade part­ners other than GCC and Arab coun­tries, with the con­di­tion that those cur­ren­cies are in the IMF's bas­ket of re­serve cur­ren­cies.The bas­ket in­cludes the dol­lar, euro, Ja­panese yen, pound ster­ling, and Chi­nese ren­minbi. The UAE's top 10 trade part­ners in­clude: China, the US, Ger­many, Ja­pan, the UK, and Bel­gium. A for­mula could be worked out based on trade vol­ume, trade bal­ance, pub­lic and pri­vate debt, cor­re­la­tions be­tween cur­ren­cies, anal­y­sis of the cur­rency's per­for­mance, as well as the ex­po­sure that the UAE's cen­tral bank is will­ing to ac­cept and work with.

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