By Abdel Sattar Hatita
CAIRO (Reuters) - Egypt's ruling party on Monday proposed steep increases in fuel and cigarette prices and vehicle licence fees 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 fuel would rise 35 percent to 1.75 Egyptian pounds a litre.
The parliament is in session to debate the proposals and the speaker, Fathi Sorour, said it should reach an urgent decision on the proposals. The ruling party dominates the house.
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.
The higher fuel prices would save the government billions of pounds it now spends on fuel subsidies, 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.
VEHICLE LICENCE FEES
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 present.
The price of high octane fuel 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 years.
"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.
Mubarak made the promise on public-sector salaries in response to higher food prices, a phenomenon driven largely by the international market rather than by local factors.
Urban inflation in the year to March hit a three-year high of 14.4 percent. The poor have been hit hardest because they spend a higher proportion of their income on foodstuffs.
