Saudi Arabia and the United Arab Emirates introduced value-added tax from Monday, a first for the Gulf which has long prided itself on its tax-free, cradle-to-grave welfare system.
Saudi Arabia compounded the New Year blow for motorists with an unannounced hike of up to 127 percent in petrol prices with immediate effect from midnight.
They are the latest in series of measures introduced by Gulf oil producers over the past two years to boost revenues and cut spending as a persistent slump in world prices has led to ballooning budget deficits.
The five percent sales tax applies to most goods and services and analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 percent of GDP.My not-ready-for-prime-time reply:
On September 2, 2017, the rate at which Saudi's foreign reserves could deplete to ZERO was five years. The kingdom was losing anywhere from $3 billion to $8 billion a month.
Most recently, their cash reserves increased slightly but that came just as Prince Salman held 100's of princes for ransom. I think the media was suggesting that Prince Salman hoped to get $100 billion from the princes. That would cover $5 billion / month for twenty months.
Losing market share and price of oil struggling to stay above $65 (Brent) suggests that Saudi is not out of the woods yet, especially considering all the challenges facing them: a) war with Yemen; b) war with Iran (but I repeat myself); c) Prince Salman's grand Vision 2030 plan; and, d) the IPO.
We've seen this movie before but the prequel was Iran; the sequel is Saudi Arabia. And yes, there will be many sequels.
This from page 366, The Oil Kings, Andrew Scott Cooper, c. 2011.
On January 1, 1977, Mohammad Reza Shah held a long audience with Court Minister Alam and accused the Saudis of betrayal. "We must give them the thrashing they deserve." The next day was worse. Court Minister Alam was greeted with the shattering news that Iran faced financial ruin. "We're broke," admitted the Shah.
"Everything seems doomed to grind to a standstill, and meanwhile many of the programs we had planned must be postponed."
He expected oil exports to fall by as much as 30 percent. When Alam tried to offer reassurance, the Shah railed against Yamani and the Saudis. "It's going to be tough," the Shah admitted. A few days earlier, during an interview with the newspaper Kayban, the Shah had foolishly lashed out at his own people, blaming them for Iran's financial crisis and implying they needed to tighten their belts. Iran had become "a paradise of indolence and sloth." It was time for everyone to roll up their sleeves.
"If we do not revise our policies we shall not survive."
".... if Saudi floods the market with oil, ... it may force us to decrease our production. And if this happens, it will affect our economic plans, our military buildup, and especially our foreign aid program ... I am worried about our internal developments," the Shah said in an interview with BusinessWeek."
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A Math Lesson
From Goodreads.com:
“If you've got a dollar and you spend 29 cents on a loaf of bread, you've got 71 cents left; But if you've got seventeen grand and you spend 29 cents on a loaf of bread, you've still got seventeen grand. There's a math lesson for you.” ― Steve Martin
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