Int. j. econ. manag. soc. sci., Vol(3), No (11), November, 2014. pp.

742-748

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The Impact of Fiscal Policies on Iraqi Economy during the Period

(2004-2013)
Abdul Jaleel Oda Hussain
Associate Professor of Economics/ Cihan University/ Sulaimaniya/ Iraq
Corresponding author: Ajalsayed63@yahoo.com

Keywords

Abstract

Fiscal policies
Structural Reform
Financial system
Iraq

Iraq belongs to the group of developing countries which are rich in natural resources; these resources form a
foundation to the countries overall financial system and in turn shape the financial revenues resulting from
the export of crude oil. The international energy market is clearly characterised by the volatility of the
demand and price changes, this reflects directly the nature of the financial system, which should be designed
in an alternative way to include in its composition a balanced budget and other tools to prevent budgets from
Oscillating, thus leading to a sweeping crises. A country like Iraq needs far-reaching financial reforms; these
reforms must be focusing on fiscal discipline and optimal allocation of resources by investing in
restructuring the economy and re-establishing the real economy, which will produce new values that
generate the taxes to support the budget financing. This may be achieved by abandoning the budgets that
rely on the export of crude oil to generate direct cash to spend on salaries and benefits.

1.

Introduction

When considering the financial system in Iraq as an exemplar of a developing country, we can identify several concurrent properties which
distinguish it from others. Some of these properties are residual influences from the former socialist and growing capitalist economies, these are
generally outlined by a mixture of several contradictory rules combined with a severe lack of fiscal discipline, and these can be defined by the
following:
Often, annual budgets were designed on a whim; they were built with no or little data to establish a clear picture which presents the actuality of
need regarding expenditure, and the means required to finance these objectives. The reality of the situation in Iraq at the present day is that state
funds are distributed according to the desires of the competitive nature of Iraqs political platform. Consequently, financial mismanagement has
arisen as a result of these ideologically competing factions.
There is an obvious lack of robust accounting systems coupled with the poor application of government transparency in resource mobilization.
The expenditure side in the budgets features lavish and extravagant, and suffers from uncertainty and lack of clarity, often used as tools to cover
up corruption and abuse of public money. [1]
Due to the fact that the institutional structures of the state in Iraq have not yet been completed or that they come through selective bases in some
cases, the preponderance is the dominance of the government. In most cases, an unelected body that manages politics, economics and all other
aspects of public life, make decisions on fiscal policies and monetary policies, controlling the issuance of money and the expenditures away
from the regulations of monetary policies, and any considerations to the surrounding economic conditions. Throughout the period studied, fiscal
policy in Iraq remained carrying specifications and features which are concentrated in the most negative impact on the economic growth and
stability in Iraq. [2]
The financial system in Iraq throughout the study period, is based on unsound fiscal policies that are short of coherence and harmony with
monetary policies on the one hand and relying on poor resource allocation and development as well as the deficiency of responsibility and fiscal
discipline in terms of the expenditures on the other. This is coupled with the absence of systematic development of the already scarce resources.
[3]
The aim of this research is to determine the true picture of the financial system and fiscal policies pursued in Iraq, analysing its trends, and
compare it with similar countries in their economies, placing the hand on the most important problems in the financial system and financial
policies to propose methods and tools for a sound financial reform. Fiscal policy as a set of means and tools used by the states to carry out its
fundamental functions, economic social and all other detailed aspects emanating from it. They are generally conducted in two aspects; the first is
the mobilization of resources that includes the entire state policies in the collection of fiscal revenues from taxes and fees and loans and other
sources. The other aspect of fiscal policy is the spending determination, because government expenditure is the main tool that enabling the
Government to do its basic functions, such as providing security and defence services and other basic services such as health, education and
spending on state administration and implementation of vital programs to serve the economy and society in the building, developing and
maintaining the economic infrastructures. This is in addition to the salaries of civil servants, pensions, unemployment benefits and funding other
programs of social security. [4]
We could say that fiscal policy was not of an importance in the past centuries, the financial system was depending on the annual budget, which
was no more than an accounting statement for the government and hadnt got any role in influencing the economy.
The decades following the great depression brought Keynesian theory to light, yet mid-seventies (stagflation) have made Keynesians economic
stimulus alone not possible anymore. Her Monetary Theory came as a rescue, which confirmed that monetary measures have the ability to
help the markets to recover from their pitfalls and readjust. [5]
The main tools of fiscal policy are; Government programs of construction works, expenditures on the various income transfer programs, and
different tax rates.

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The Impact of Fiscal policies on the Iraqi economy during the period(2004-2013)
International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

Table No. (1) Tax revenues as % of GDP for selected countries 2012
Country
Tax%

Sweden
45.8

France
44.6

Denmark
49

UK
39

USA
26.9

India
17.7

Kuwait
1.4

Mexico
29

Nigeria
6.1

Iraq
3.5

Source: World Bank annual report, 2012

The above table shows that the market economy of the developed countries is depending on the taxation for the budget financing, whereas the
group in northern Europe countries levied higher taxes than the rest of the world, because of their generous social programs.
Nevertheless enjoys a higher level of economic growth rates, and this is in contrary to the law of the Austrian economist " Colin Clark " which
stipulates that taking more than 25 % of GDP in taxes leading to a rapid disaster. In other words, the current capitalist system with its mixed
forms would be subjected to new laws in its evolution that may differ from what we knew of the laws of capitalism in the initial covenants. The
less developed countries have less tax rates, especially oil rich countries. Iraq represents one of the least tax rates countries. [6]
Greater part of humane nations managed through the use of taxation to solve or at least mitigate the dilemmas of social inequality. When the
majority voted on the type of taxation system, It had practically done some kind of settlement creating a compromise between enthusiasts of the
community to keep all what gained from economic activity. As it is the result of their personal efforts, and the other part of the community who
advocates alleviating social inequalities and between the haves and the have-nots.
With the development of power and authority of the state and the evolution of its institutions, the taxation has been identified, as an important
mechanism in financing the government activities to cover its security and order expenses. So far, several types of taxes have been known:
Direct taxation: progressive tax, proportional tax, regressive tax and Indirect taxes.
Equal people pay the same tax rate, because they are able to get equal access to public goods and benefits, take, for example, the Security and
defence Services; Adam enjoys its benefits with the same amount as much as Eva. But, unequal people must pay taxes at different rates based on
their unequal gains, so there is a minimum income which is exempt from direct tax, above that it is subject to the rates that rise accordingly. [7]
Taxation evolved through history and it is no longer a Governmental contrivance funding its expenses. But taxation today became one of the
most important economic implement to weaken and loosen the economic and social inequality, in addition to its importance in influencing the
consumption rates and types of consumption and the flows of imports and many other issues.

2.

Literature review

The importance of this paper stems from the scarcity of attention to the topic of discussion as it is rare to come across such research on the issue
of fiscal policy in Iraq. There are only a few scattered articles and some modicum of serious analysis which has dealt with this subject. These
studies are useful as they provide a detailed description of the processes and outcomes of fiscal policy in Iraq. However, these studies are lacking
in-depth analysis and do not cover up to date data which is necessary for the progression of research in this instance. This study acts as a
continuum to the earlier works and provides further analysis of financial policies in Iraq; this research also hopes to build on the conclusions of
previous works whilst conducting a breadth study of what is happening and how to address existing issues. The more significant studies are as
follows:
(Saleh 2010) within the volume Rentier state from the central command to market economy focuses on displaying the advantages of state
intervention in economic affairs, Saleh highlights the significance of structural reform and describes how structural reform has been a key
component for the transitional period within Iraqs economic structure. Saleh also addresses which structural reforms are necessary to better the
performance of Iraqs financial system. In regards to this research, this volumes importance lies within the chapter Saleh dedicates to the
analysis of monetary and fiscal policies, here he criticises the governments poor performance and faults the chaotic nature of financial strategy.
Similar to (Al-Basry 2011) within The federal budgets and the challenges to the Iraqi economy, he also primarily focuses his research on the
first 5 years after the change in government in 2003. One way this study has expanded on existing research in this topic is through providing up
to date evidence to base new analysis upon. Al-Basry stresses the positive aspects of the financial performance of Iraq through highlighting
explicitly the improvements in the countrys GDP per capita and social programs carried out by the government. In accordance to this study AlBasry also agrees on the importance of fiscal discipline, however the short comings of The federal Budgets lies simply in the writers obvious
neglect of the scope of corruption which exists within the Iraqi Political system. (Al-Basri A 2012) has provided a pool of useful data within his
works titled Analytical reading in the Iraqi budgets (2007-2011).However the research fails to provide a rich analytical response to the
outcomes of the budgets after 2003. The descriptive nature of Al-Basris research is certainly notable to this study as the detailed descriptions
have provided a clear picture outlining which methods have been applied leading to the failure in financial policy. Al-Basris research is a key to
this study as a reliable source for a range of analysis. (Jurani 2012) also complies with the studys general viewpoint, Jurani within his article
The tax reform, the concept and objectives points out the many shortcomings of financial policy through their negative impact on the general
economic performance. Jurani includes a range of proposals which encourage new methods of tax reform. Jurani agrees on the real need for
financial policies to move away from existing structures, urging the ministry of finance to consider taxation as a potential alternative to oil
revenues as a way of driving the Iraqi economy.

3.

The impact of fiscal policies on Iraqi economy during the period (2004-2013)

The financial policies in Iraq after the mid-seventies of the last century were characterised by several properties, that have left negative impact
on the overall economic activities of all sectors, including the production and non- production of the private sector or the public sector alike.
However, this pattern of fiscal policies continued with regret after the political change in 2003 the aggravation of the negative aspects of the
financial system became crystal clear. [8]

Abdul Jaleel Oda Hussain *

744

International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

Table no. (2) Iraqi budgets 2004-2013/billion$

Years
Total expenditures
Total revenues
Deficit

2004
19.2
12.4
6.8

2005
26.4
21.7
4.7

2006
34.5
30.7
3.8

2007
40.2
32.7
7.5

2008
56.5
47.8
8.7

2009
62.4
45.5
16.9

2010
71.2
55.8
15.4

2011
86.4
66.6
19.8

2012
101
88.2
12.8

2013
118.6
102.1
16.5

Source: Planning Ministry, National statistics bureau Year book, 2004, 2005... 2013

The data in Table (2) show that the revenues rose in 2005 by 75 % more than in 2004 and has been rising at increasing rates until it reached, in
2013 seven times its size in the year 2004, at an average annual increase of approximately 72%. That was the result of two main factors: the high
rates of crude oil production and the increased prices of raw materials in the global market for oil, which is reflected directly on the high total
revenues, because oil revenues make up 94% of total revenue for the Iraqi budget on average.
The expenditures on the other hand show a steady increase in overall expenditure. It increased in the year 2005 by 37.5% more than its size in
2004 reaching in 2013 to more than 5 times its size in 2004 and throughout ten years, the rate of increase was more than 51%.[9]
The entire annual budget deficit amounted to somewhere between 12-30 % with annual rate of 18%.
From the follow-up of the figures and implementation of budgets from one year to the other, it can be concluded that the proportions of the
annual deficit is a formal accountancy but not real deficit. That is true because the revenues are from the export of crude oil mainly and all what
the budget designers trying to do is setting a price for the exported of crude oil less than the prevailing price by about 10-20 % as a hedge against
a sudden drop in oil prices, which might causes a crisis.
The second reason is to rotate the money resulting from the weakness in the financial implementation rates for capital spending in the annual
budgets, which is why the government never found itself in a liquidity crisis. For comparison purpose; in the year 2007, for example, surplus of
oil revenues in Saudi Arabia arrived to 25% of GDP, in United Arab Emirates was 29% and in Kuwait; it has exceeded the 48 % of GDP for the
same year. [10]
3.1 The expenditure side:
Table No. (3) Annual budget expenditures 2004-2013/Billion $
Years
Total expenditures
Current exp.
Investment exp.

2004
19.2
14.2
5.00

2005
26.4
20.6
5.80

2006
34.5
27.9
6.60

2007
40.2
30.2
10.0

2008
56.5
41.8
14.7

2009
62.4
45.5
16.9

2010
71.2
52.2
19.0

2011
86.4
62.2
24.2

2012
101
69.0
32.0

2013
118.6
73.2
45.4

Source: Planning Ministry, National statistics bureau Year book, 2004, 2005... 2013

The most important observations that can be inferred from the above table is the large size and growing annual expenditures which reflect the
high volume of spending from annual revenues, without achieving a surplus for any savings. This means that all revenues are spent. As well as
the expenditure composition shows that the current expenditure (operational) swallows 75.6 % of total expenditures, while capital expenditure
for the investment was on an average of 24.4 % of the total.
Of 646.4billion$ the entire expenditure throughout the period, 436.8 billion$ have been allocated for the purpose of operational expenditure;
only 179.6 billion$ were apportioned to the investment side for the duration of the search. At a time when the country is suffering from the
devastating infrastructure and idle or semi- idle economic sectors were in dire need of investment. [11]
Table No. (4) Iraqi Expenditures proportions% 2004-2013
Years
Invest. Exp.
Current Exp.

2004
15
85

2005
20
80

2006
17.6
82.4

2007
23.5
76.5

2008
33
67

2009
22
88

2010
27
73

2011
27
73

2012
30
70

2013
34
66

Source: Planning Ministry, National statistics bureau Year book, 2004, 2005... 2013

These percentages do not reflect the bitter truth, which is the achievement of more than 100% of the spending allocated to the operational
(current) side of the budget. What actually was spent on the financial investment was estimated at a little more than half of these allocations rates
during the period of ten years. It shows a catastrophic dimension when considering the level of achievement, whether in infrastructure projects or
the development of other economic sectors, since there is no evidence on the ground commensurate with the spending of $ 180 billion.
From this perspective, it was possible that the figures obtained from the rates of achievement of financial spending on all of the operational side
and the investment side, were disappointing and they reflect the continuation of disastrous financial policies in Iraq, by wasting scarce resources
away from the real economic development.
Table No. (5) Financial Implementation rates of the investment budgets%
Years
Investment%

2004
38

2005
41

2006
43

2007
62

2008
66

2009
48

2010
55

2011
61

2012
59

2013
68

Source: Estimations from Institute of Iraqi economic reform 2012

The massive military expenditures: the average annual military imports during the period 2004 - 2013 was about 45 % of the total
imports, where the state has spent $ 57 billion on military imports, while imports totalled 123 billion dollars during the same period.

745

The Impact of Fiscal policies on the Iraqi economy during the period(2004-2013)
International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

The most obvious feature of fiscal policy during this period is the militarization of the Iraqi economy. The military sector in general,
had exhausted the bulk of the gross domestic product. Thus wasted available financial capabilities and negatively reflected on the rates
of economic growth. This period has witnessed growing rates of military expenditures, whether due to the expansion in the rebuilding
of the security forces and the local police and Federal police or restore, diversify and update the Iraqi army, the security forces and the
defence are totalling to a million troops, especially after the departure of U.S. troops. The appropriation of the security and defence of
the budget in 2007 was 15% and in the year 2008 amounted to 18% and 2009 it amounted to 13.6 % and in the year 2010 amounted to
15.3 % and in 2011 it amounted to 14.7. In 2013, it amounted to monitor the arming of 17 % of the budget. [12]
According to a report released by the Institute of the Stockholm International Peace Research, Iraq has topped the list of Arab states in
spending on armaments for 2013.

The absence of real financial audit control and final accounts: where, when and how much has been spent from the annual budget of
the previous year-end and the spending purposes to allow the public to know the level of efficiency and transparency and the size of
the waste in public money and eventually to see the amount of corruption. During the ten-year period the financial ministry did not
provide any final account, which makes transparency completely in the country unavailable.

Waste of public money through excessive government recruitment where the government machinery employee expands to a little over
3.5 million people. The number of people who are able to work is 35% of the population. This is equivalent to 10.5 million (minus
40% of non-working women) i.e. 20% of the total which comes to 2.6 million. The net 7.9 million to be the government's share, 3.5
i.e. 44% of it the number of manpower for the ministries and departments centrally funded rose from 2.06 million for the 2007 fiscal
year to 2.568 million (2010) and to 2.85 million for the fiscal year 2012, and to 3.5 for the year 2013. Operating expenses and working
in the public budget to finance the cost.
This without taking into account the number of armed forces and police services, if added to the public sector; it would exceed 60 % of
employment.
This is far from the economic logic. The Government now paying salaries, wages and social benefits to about 25 million Iraqi citizens
out of 30 million the entire population. Departments and offices of the government now are one of those obstacles to the efficient
performance. It is estimated that all the institutions of the public sector employees containing the equivalent of three times the real
need to run. [13]

Excessive expansion in the building of state institutions, members of the Legislative Council and the expansion of the government of
the Council of Ministers, which include 42 ministries. Each minister has some agents and advisers, and managers procurators and
inspectors procurators and their offices, the offices contain a number of managers ...and so on, The salary of a member of Parliament,
for example, is a little more than 250 000$ per year, there are 325 MP. According to some estimates published recently, what is spent
annually on the Iraqi parliament and the three presidencies exceeded one billion dollars. This is half the budget of a country like
Jordan, as a percentage of total spending was 8.5 % for 2007 and 10.6 for the year 2008 and 7.8 for 2009 and 7.9 for 2010 and 9.1 for
the year 2011. In addition to the burden created for their pensions, as they have awarded a generous pension scheme for themselves.

Public sector companies, instead of being a tool for the production of goods to add values to the economy, they have become a load on
the government, which now considers itself politically and morally obliged to spend on those failed institutions, which are around 400
institutions of the public sector.
Since 2006 and so far, has been allocating 4 billion$ a year in government budget to support these companies. This is one of
mismanagement and wasteful public resources. In other words, the state pays a large amount each year in order to bail out the failed
and incompetent companies, rather than sold, leased or operated in partnerships.

We stress on the degree of ignorance governments revelled in on the economic policies, focusing on the distribution side without starting to
promote the production of wealth. The 119 enterprises, which are distributed in various economic sectors employee up to 1100 thousand workers
and engineers, who dont contribute to the GDP by only 1.5%.[14]
Canada with the three million square kilometres and a population equivalent of Iraq is administered by 650,000 employees in 2006, and with
high efficiency compared to three million employees (except military and police) in Iraq. [15]
Table No. (6) Financial allocations for some sectors/Budget 2010
Sectors
%

Defence
14

Education
9

Power
21

Health
4

Social
12

Water
3

Transport
1

Agriculture
1

Construction
1

Source: Iraqi Gazette, General Budget Law of the Federal Republic of Iraq for fiscal year 2010

The sectorial distribution of expenditures in the budgets of the ten years, we are considering in this paper, suffers from large imbalances in the
fiscal policy. This does not serve the economic development process of the country. To illustrate this topic, lets compare some of the sectoiral
allocations with each other and then with another country, such as Arabic Saudi Arabia, for example in which the education and health
allocations are not exceeding 13% the construction is 1%, but the defence allocations exceeding 14%.
Perhaps, comparing these allocations with Saudi Arabias budget for 2013 helps us to see the degree of efficiency of these allocations. The Saudi
Arabian budget provided to the education sector and the development of human resources allocations equals to 25% of total spending, and the
health sector and social affairs has been allocated 12.5%, but the water sector, agriculture, was 11%, and the transport and communications
sector was 8%.
In comparison Iraq's budget provided the following allocations: the education sector 8%, health sector and the environment 4%, agriculture
sector 1%, and the transport and communications sector 0.9%, but 18% was on defence alone.[16]

Abdul Jaleel Oda Hussain *

746

International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

3.2 Mobilization of revenues:

Table No. (7) Iraqi revenues components 2004-2013/Billion $
Years
Total revenues
Oil revenues
Oil rev.% T Rev.
Non-oil reve. %

2004
12.4
12.1
98
2

2005
21.7
20.8
96
4

2006
30.7
28.5
93
7

2007
32.7
30.9
94.7
5.3

2008
47.8
45.8
95.9
4.1

2009
45.5
38.8
85.3
14.7

2010
55.8
50.6
90.7
9.3

2011
66.6
59.3
89
11

2012
88.2
82.2
93.2
6.8

2013
102.1
95.1
93.2
6.8

Source: The Ministry of Planning, Department of Economic and Financial Policies, Reports of the Iraqi economy for the years 2004... December 2013.

During the period studied it is obvious that the total revenues kept rising year on year, yet it does not create a state of confidence and optimism
in the Iraqi economy, as long as the oil exporting of raw materials constitute 93% of total revenues, which means continuing to run behind a
galloping horse.
That is where the Iraqi economy remains in its stability and growth subject to the price fluctuations and crises in the international oil markets on
one hand, the exposure to the depletion or the adherence to OPEC quotas on the other.(We cannot bring evidence for the impact of the oil market
swings on Iraqi revenues during these 10 years of study whereas prices kept comparatively stable, yet we have clear evidence from the eighties
of last century when prices went down and Governments expenditures up forming economic crisis).
As for the non- oil revenues, it illustrates very low contribution in an average of only 7 % of total revenues during the period of ten years. This
originally comes from all taxes and all other revenues. This is very modest proportion of non- oil due to the lack of the appropriate fiscal policy
in the development of resources.
We can put our hands on the main ills of the Iraqi economy, as such fiscal policies throughout the period continued to rely on a single source of
funding without being developed and promoted to be the locomotive dragging behind it other sectors towards development and to diversify the
economy by finding other alternatives for funding.
United Arab Emirates for example despite being oil exporting country, yet its revenues seem vary arguing that oil export is the base for the
investment in infrastructure and in the development of other economic sectors. Until the share of oil revenues reached 25 % of its GDP for the
year 2012, rebalancing its economy in favour of Tourism, trade and manufacturing industries. So did the state of Kuwait benefiting from its
balancing fund (buffer fund), which grew up from its investment to gain around 27% of GDP by 2010. [17]
Table No. (8) Non-oil revenues 2012

Taxes
Customs tax
Income tax on individuals
Corporate income tax
Corporate income tax foreign companies
Income tax employees
Income from interest
Public companies (state-owned)
Fees from services
Taxes and other charges in
Excise tax
Total

Amount/Million$
839
464.05
264
261
101
43.5
2254
75.4
2384
287
6.992

%
12.1
5.8
3.9
3.7
1.5
0.6
32.5
1.1
34.6
4.2
100%

Source: Iraqi Gazette, General Budget Law of the Federal Republic of Iraq for Fiscal Year 2012 number 4166, 2012.

This table represents an example of tax contribution in the total revenues, which as we see not exceeded 7 % , reflecting the policy that relying
on oil export, which did not show a desire among policy makers to develop other sources of income.

Productivity weakness and lack of efficiency; the productivity of labour, especially in the agricultural sector in Iraq. It is one of the
lowest per acre of grain compared to some developing countries or neighbouring countries or in relation to what it is in most
developed countries, the share of the agricultural sector of GDP for the year 2010, for example, 2.4%, about the same analysis applies
to other economic sectors. The manufacturing sector share of the total output was 1.7% for the same year. If we take, for example, the
oil sector, which range from its share of between 60 % to 70% of GDP, it does not employ only 2% of the labour force, while 98% of
the labour force employed in the unproductive activities; trade and service- contribution exceeding 30% of GDP.
The national oil company remained a prisoner of crude oil extraction and export, and even in this area failed to catch up comparative to
neighbouring oil-producing countries. The oil industry in Saudi Arabia for example has arrived to the equivalent of five times the size
of the oil extraction in Iraq, despite the fact that the oil discovery in Iraq was long before Saudi Arabia. So it has in Iran (before the
international embargo on its export, its oil production reached 4.5 mil/b/day by [18]
Iraq still depends heavily on exports of crude oil and by 93.1 % of the total public revenues in the state budget in 2013 and that the
budget is the largest.
Half of Government employees dont attend to their work and a lot of them are actually not working more than two or three hours a
day. Some of them come to the office, but do not work at all, a third of the Iraqi ministries, experiencing the phenomenon so called
ghost employees ", and these are " people who receive their salaries regularly, but who do not turn up at work (or do not exist) at all
in the headquarters of their work. This fact badly affecting the man/hour productivity, leading to a huge loses of revenues.[19]

747

The Impact of Fiscal policies on the Iraqi economy during the period(2004-2013)
International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

4.

Investment in the reconstruction of damaged infrastructure or develop existing infrastructure commensurate with the requirements of
the economy. This was the most important aspect that the urgent needed to be dealt with, because the basic structures of the economy
was ruined as a result of wars and violence, yet the policy did not seem to understand the importance of the values that can return from
rebuilding infrastructure as the main source of supporting the whole economic revenues. [20]
Missed the opportunity to design fiscal policies during the past four decades, in order to absorb oil revenues by using it as a vehicle
pulls behind all economic sectors towards prosperity. Total budget allocated to the investment between 2004 and 2013 was more than
180 billion dollars, but what has been achieved on the ground of the projects does not exceed 15-20 % of these enormous sums. [21]
Failing to design a fair tax system that can make a great difference, as it become clear from the outset of this research how the tax has
turned into one of the most important tools to influence macroeconomic indicators on one hand and in the redistribution of income on
the other.

Conclusions and recommendations

4.1 Public expenditures; the conclusion on this tell that fiscal policy in Iraq during the period studied was far from fiscal discipline, and did not
realized the responsibility for public property. This is evidenced by the skyrocketing and extravagant spending, and the prevalence of looting,
corruption and infringement of public funds, in addition to ignoring to mind the macroeconomic indicators particularly with regard to twining
with the monetary policy of the Iraqi Central Bank. ( as a result of ignoring the harmony between the two policies, inflation rates for the years
20004 and 2005 was around 22%, by 2013 still moving between 6-8).There is chaos, mismanagement, corruption and lack of financial strategic
planning. If we look at the Iraqi budget for the year 2013, which came a provision for public expenditure of 118 billion$, 66% was allocated for
operating expenses.
Rationalising public expenditures of public assistance and support the basic services that are in development and poverty alleviation, such as
primary education and basic health, and infrastructure investment, stressing it with respect to the first phase of reconstruction.
Health services and education, which represent in this time the most important social services, from the standpoint of economic investment
activity, that affect the most important aspect of the investment, we regard as the only investment in human resources. The Iraqi Government
now is in urgent need for road map strategy focusing on three objectives; rebuilding the infrastructures, investing in education and health
services, which form the only way leading to the economic transition toward a stable and sustainable growing economy.
4.2 Rallying and optimizing economic revenues; the data representation within the paper show clear evidence that the scarce revenues have
been mistreated; from the low investment in oil sector which preventing the sector from turning into a manufacturing industry maximizing the
revenues, to the standing at and relying on the export of crude oil and financing its budgets from one single source. It is vital to abandon this
policy toward multi sources financed economy, by encouraging other economic sectors to develop. Then it can benefit from the taxation.
4.3 Tax reform; expand the tax base and adopting moderate tax rates, to take into account that the tax law, which envisages the ease and justice,
is one of the priorities to initiate the process of economic reform.

Foreign companies operating in Iraq, whether they are working on service contracts, with the privileges of permanent or indefinite or
their presence in Iraq based on the completion of projects. It is true that the Investment Promotion Law was given the privileges of tax
exemption for 3-5 years, and the near future will allow us to see all or most of major corporations that get millions of dollars a year,
subject to the tax system. It's time to reconsider the laws of tax exemption.

Iraqi companies, the local public or private , and in spite of encouraging the local private sector, considering the tax issue as an
effective tool for the encouragement, but the encouragement and motivation of this tool should be temporary and secondly not exempt
all companies or all sectors, finally, the exemption were not a zero tax rate. One of the important recommendations, as we know in the
transitional period is the tax cuts had to be 15-20%.

Income tax on individuals, on a progressive taxation system, they increase as the percentages of income increase. It is true that the
majority today of Iraqi workers are going through the recovery phase for the improvement of income and they are still unwilling to pay
a proportion income tax.
We must start with low tax rates and studying the income levels we could determine the ceilings to start and the ceilings that end the income
categories. Each of the tax system must be careful, fair and easy, and here lies the challenge. It will at least contribute to alleviating the disparity
between the rates of incomes, and then return some of the excessive consume towards the Treasury.

Property tax according to several press reports, there is a widespread corruption and bribery in the government departments
responsible for the control of public lands or those of tax on real estate, in terms of property tax or property transfer fee or tax on the
rent. Today the country is going through a state of economic expansion; this could be witnessed through its beginnings of buying land
and property for housing or investment purposes. Which lead to rise of house prices and the number of real estate and quantities of
traded funds, this means more taxes to support the government coffers; it should be designed in a fair and simple manner so as to not
becoming an impediment for investment.

Financial penalties penalty breaking the law or infringing on the environment: There is a kind of tax began in the late twentieth
century, occupies an important place in the life of democratic countries in the West, in particular, we refer to those funds that are
imposed on citizens for the purpose of obeying the law and prevent abuse of the society and the surrounding environment.
This takes many forms and is becoming increasingly diverse and varied. This kind of fines should not be stressed instead of the arrest or
imprisonment.

Indirect taxes: Such as value-added tax, which we propose to apply a very simple percentage on All goods that are manufactured or
traded in the market of non- food and pharmaceutical and baby clothes. We could start with 1-2% , for example, and escalate with the

Abdul Jaleel Oda Hussain *

748

International Journal of Economy, Management and Social Sciences Vol(3), No (11), November, 2014.

expected gradual rise to the standard of living for Iraqis. To reduce the consumerism and push personal savings and that is one of the
signs of recovery in the economic environment and its orientation towards investment and increase capital accumulation.
However by studying the situation thoroughly and clarify these difficulties, looked at through scientific programs, we could convince the other
parties to adopt such a policy of temporary support to create the desired balance.
4.4 The policy designers should have the ability to know and measure the impact of public spending in the achievement of the desired
macroeconomic objectives of fiscal policy as well as measuring the impact of the tax burden on the different segments of taxpayers. In terms of
fiscal policy it has to be in harmony with monetary policy by monitoring any signs of crippling inflation or recession by way of fiscal discipline
that would be rallying resources or rationalizing spending. Either fiscal policy far-reaching belong to financial strategy, which focuses on the
diversification of the revenues in the near future by going out of the plight of relying on funding from single depleted source of income.

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