Egyptian parliament approves rise in fuel prices

Egypt's parliament approved a steep rise in fuel and cigarette prices to cover the costs of public-sector pay hikes proposed by the ruling party. On Sunday, Egyptians ignored the opposition's call for a strike against rising prices.


CAIRO, May 5 (Reuters) - Egypt's parliament approved steep
increases in fuel and cigarette prices and vehicle licence fees
on Monday to cover the costs of public-sector pay hikes that
President Hosni Mubarak proposed last week.

Economists said some measures, such as the increase in fuel
prices, would add to high inflation and offset some of the
effects of the wage increase.

"The government is giving with the right hand and taking
back with the left hand," said Hani al-Husseini, a tax expert
and a senior member of the leftist Tagammu opposition party.

A booklet distributed by a parliamentary committee
dominated by the ruling National Democratic Party (NDP) said
the price of 90 octane gasoline would rise 35 percent to 1.75
Egyptian pounds ($0.33) a litre.

The lower house of parliament approved the measures,
proposed earlier in the same day by the ruling party, by a vote
of 297 in favour and 76 against, said parliament speaker Fathi
Sorour, who had called for an urgent decision on the proposal.

Mubarak, facing growing public dissent over price rises,
last week offered public sector employees a 30 percent increase
in basic salaries, provided necessary revenue could be found so
that the increase did not add to the budget deficit.

Prime Minister Ahmed Nazif told a news conference the price
rises would go into effect starting at 1900 GMT, and would
generate 12 billion pounds for the budget to pay for expected
wage increases and help handle higher global energy costs.

He said public transport fares would not rise.

Asked whether the combination of wage increases and price
rises would affect inflation, Nazif said: "It won't have any
negative effect on inflation because the money to finance wages
is coming from real sources."

Fuel subsidies had been expected to cost 57 billion pounds
in the financial year ending on June 30. The government has
wanted to raise petrol prices for years, saying the subsidy
benefits mainly rich people with large cars.

Ahmed Ezz, a senior ruling party official, told parliament
the government now spends 111 pounds a month on subsidising the
average car owner who uses 100 litres a month.


The measures sparked strong reactions by opposition
Islamists and independent members of parliament, and the head
of the Muslim Brotherhood's parliament bloc, Saad el-Katatni,
decried the package as a "conspiracy against the poor."

"This is a tough day, a black day in the history of the
Egyptian people because prices rose," Katatni said. His group
holds roughly a fifth of seats in parliament.

The rises in vehicle licence fees were steepest at the
luxury end of the scale. For cars with engines with a capacity
greater than 2030 cc, owners would pay an annual fee equivalent
to 2 percent of the car's value, up from 500 pounds at

The price of high octane gasoline would also rise at a rate
higher than for other fuels. While diesel and kerosene would
rise 47 percent, to 1.10 pounds a litre, the price of 96 octane
petrol would go up 57 percent to 2.75 pounds a litre.

The price of foreign-brand cigarettes would rise by up to
20 percent, against about 10 percent for local brands.

The booklet proposed rises of up to 57 percent in the price
that energy-intensive industries pay the state for natural gas,
an extraction fee of 27 pounds a tonne for clay extracted from
quarries and the abolition of tax breaks on some industries.

Finance Minister Youssef Boutros-Ghali told Reuters last
month that the salary increase would not have an inflationary
effect if the government could find extra revenue to cover it.

But Angus Blair, head of research at Beltone Financial,
said the price hikes would drive up inflation, which rose to
14.4 percent in the year to March, the highest rate for three

"Obviously, whenever you put basic products prices up, you
are going to have an immediate impact on inflation ... and it
may well just urge other businesses to increase prices because
once inflation rises it is quite difficult to bring it down
again," he told Reuters.

Husseini the tax expert said the government should instead
raise corporate taxes and impose "exceptional and temporary"
taxes on massive profits in the booming real estate sector.

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