Lebanon's severe financial and economic turmoil necessitates a profound societal shift to mend its fractured social fabric and engender trust between the government and its citizens. A key initiative that could serve this end is the National Social Protection Strategy (NSPS), which aims to fundamentally overhaul the state’s approach to social welfare. The strategy, which was launched in February 2024 by the Lebanese government, sets out the coverage, adequacy, institutional framework and financing of five key pillars: Social assistance, social insurance, social welfare, access to social services, and labor market activation. 

In light of this, TPI and UNICEF organized a roundtable discussion on February 21, 2024, with senior government officials, MPs, experts, and participants from local and international organizations to highlight the priority reforms in the NSPS a well as identify concrete measures to finance them under an equitable fiscal framework. This article synthesizes the key points that were raised in the meeting and outlines three sets of reforms needed to bolster revenue which include combatting tax evasion, increasing tax rates, and instituting new ones.

Lebanon's crisis has laid bare the stark inadequacies of its social safety mechanisms, with countless families and children thrust into extreme poverty and forced to rely on informal, often sectarian-based networks for support. An inclusive and strong social protection system is crucial to safeguarding vulnerable families as well as ensuring the well-being of children, particularly those living in poverty, who have borne the brunt of the crisis. The NSPS proposes a hybrid model of social protection that combines lifecycle and pillar approaches. This model seeks to reintroduce the state as the primary guarantor of social security, steering away from fragmented and confessional systems, and toward an inclusive, rights-based framework that can foster recovery and growth.

The NSPS presents a vision for key reforms to rejuvenate Lebanon's social protection infrastructure, entailing the overhaul of the National Social Security Fund, establishment of a unified social health protection system, and enhancement of the governance structure in the social security administration. Such measures would not be mere administrative adjustments. Rather, they would constitute fundamental steps toward rekindling the Lebanese people's faith in their government, namely by emphasizing the crucial role of human capital in national recovery efforts.

Among the most pivotal components of the NSPS are proposed social grants, which aim to provide support to Lebanese citizens facing vulnerabilities across different life stages. The strategy envisions a national child grant, a disability allowance, and an old-age social pension, alongside expanding the poverty-targeted social safety net program. These grants would ideally contribute to establishing a social protection floor that can address the immediate needs of the most vulnerable segments of the population. These programs are projected to cost approximately $500 million per year over five years, emphasizing the need for progressive domestic financing strategies to sustainably fund expanding social assistance programs.

The NSPS’s ambitious vision is contingent on Lebanon's ability to cultivate a conducive fiscal environment and source adequate financial resources. These revenues, generated through appropriate taxation, are critical in enhancing social spending, particularly non-contributory / tax-funded schemes, and translating priorities into tangible results for vulnerable families and children. The three sets of reforms that were highlighted in the meeting to bolster state revenue while prioritizing equity include combatting tax evasion, increasing tax rates, and instituting new taxes.

Lebanon's economy has been significantly undermined by widespread tax evasion, with estimates suggesting that the country lost about $5 billion to this practice in 2017 alone, accounting for nearly 10% of its GDP at the time. Implementing stringent measures to combat tax evasion could reclaim a substantial portion of this lost revenue. Enhanced enforcement, closing loopholes, and adopting modern tax collection technologies are essential steps in this direction. By tightening the noose on tax evasion, the government could potentially double the funds required for the social grants program.

Second, taxing windfall profits from loans into Lebanon's fiscal reforms would generate large revenues. During the financial crisis, borrowers who repaid their loans at the official exchange rate—significantly lower than the market rate—accrued considerable gains. These gains, essentially an economic byproduct of the crisis management policies, are estimated to total about $34 billion. By subjecting these profits to taxation, using the existing progressive income tax rates that range from 4% to 25%, the Lebanese government could unlock a significant revenue stream. For instance, if a conservative average tax rate of 10% were applied to these gains, the state could potentially generate $3.4 billion in revenue. 

Additionally, taxing the profits made through the Sayrafa exchange platform, which were lucrative venture for a select few, could generate substantial revenues if a 17% profit tax were implemented. This measure alone could secure about $500 million, based on the platform's estimated profits. Taxing vacant properties presents another significant opportunity.

With approximately 20% of Beirut's properties lying vacant and mostly used as financial assets driving up rent and ownership prices, a 1% annual tax on the conservative assumption of an average unit price of $150,000 could yield about $60 million from Beirut alone.

Moreover, introducing new direct taxes on high-income individuals and profitable entities could substantially increase government revenues. A progressive tax on income, profits, and capital gains, currently under-taxed, could be recalibrated to ensure that the wealthier segments of society contribute a fairer share. Increasing tax rates in this category, from the current 1% of GDP to closer to 6% in 2018, could substantially bolster the state's coffers.

Implementing a "sin tax" on products harmful to health and the environment, such as tobacco, alcohol, and certain luxury goods, could serve dual purposes. It would discourage consumption of these products while directly funding social security programs.

The implementation of the NSPS would represent a crucial juncture for Lebanon. It offers a path toward a more just and inclusive society, in which the government would fulfill its role as a protector of social welfare. This strategy goes beyond mere economic recovery; it is a vital step toward rebuilding the social contract in Lebanon, including the need for solidarity, equity, and collective responsibility. However, this requires unwavering political will and a commitment to systemic reform, starting with a tax structure that places the interests of society front and center.