Riyadh, Saudi Arabia:
Saudi academician Abdullah, who managed to get two mortgages and part-time jobs under one roof, was about to build his own home, but the Kingdom's coronavirus-led austerity measures have hit his dreams hard.
Saudi Arabia has announced that it will treble its VAT from July, and will end a monthly government worker allowance as of next month as oil prices collapse, while at the same time there is a buying frenzy for overseas assets including an English football club.
The shock underscores Crown Prince Mohammed bin Salman's risky strategy to further undermine a once-generous welfare system so that the predominantly young population copes with a new reality of declining incomes, fewer jobs, and lifestyle downgrades.
The changing fate could lead to public resentment and burden a decade-long social contract in which the citizens were showered with subsidies and tax-free handouts in exchange for loyalty to the absolute monarchy.
For Abdullah, a 40-year-old triple father, a five percent VAT introduced in 2018 and the apparent expiry of a long-standing government policy to offer interest-free home loans – among several subsidies that have been abolished in recent years – was bad enough.
Abdullah struggled with a stagnant government salary and started part-time appearances, including offering plumbing services and working on an app where he took out a second mortgage to build a house on the outskirts of Riyadh.
Now a three-fold increase in VAT, which would increase the cost of all construction elements, from cement to brick to reinforcement bars, has set him back even further.
"Expensive building materials have become more expensive with three times the VAT," said Abdullah, who is now unsure whether his house will ever be built.
He requested that his real name be withheld for fear of state retaliation.
Few Saudis will speak openly in the face of growing nationalism and crackdown on dissent.
But many citizens are nostalgic for what Saudi expert Karen Young calls the "magical decade" between 2003 and 2014, when the kingdom amassed spectacular oil wealth that funded a generous welfare state.
A reduction in government size is likely to reduce consumption, as companies forecast a decline in sales for everything from cars to cosmetics to household appliances.
"For the average Saudi household, the cost of living has just gotten much higher. The spillover effects will … (affect) private sector growth," said Young, a scientist at the American Enterprise Institute.
"VAT increases household spending – from food to housing, water, electricity, restaurant bills, transportation, education and health."
The kingdom could also be less competitive than other Gulf states that introduced VAT but did not increase it by more than five percent.
However, Saudi Arabia has limited options as government finances are impacted by falling oil revenues and the coronavirus crisis that has virtually brought the local economy to a standstill.
State-owned oil giant Aramco – Saudi Arabia's cash cow – saw a 25 percent drop in earnings in the first quarter, and the rest of 2020 could be even bleaker.
The $ 27 billion austerity measures will only partially contain a yawning budget deficit, which is expected to rise to a record $ 112 billion this year.
However, the government is careful not to cut public jobs and salaries given the already high youth unemployment.
Almost two thirds of all Saudis are employed by the government, and public sector payroll accounts for about half of all government spending.
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While the "cost of living" for government officials has been reduced, the government is maintaining another monthly handout known as the "Citizen Account" that benefits around 12 million Saudis and costs billions of dollars annually.
"Cutting subsidies when people face economic problems is a risky step," said Quentin de Pimodan of the Research Institute for European and American Studies.
"To avoid a backlash, Saudi cuts one allowance but keeps the other, although it can't afford it."
The pro-government newspaper Okaz said the austerity measures include a $ 8 billion cut in Vision 2030, Prince Mohammed's ambitious plan to avert the economy from oil.
However, it remains unclear whether this will include his dream project, the $ 500 billion NEOM megacity on the west coast of the kingdom.
The austerity measures have prompted some like Abdullah to question government spending on entertainment and sporting extravagance, which is part of a slow but costly economic diversification.
The recently announced shopping spree of the Saudi Public Investment Fund is also located under the scanner.
These include $ 372 million for Newcastle United football club, $ 775 million stake in Carnival cruise company, and $ 450 million for Hollywood operator Live Nation.
The PIF did not respond to requests for comments.
"Buying distressed assets at bargain prices could make strategic sense for PIF," said de Pimodan.
"But in times of painful cuts at home, they tend to keep their shopping trips discreet."
(Except for the headline, this story was not edited by NDTV staff and published from a syndicated feed.)