FOR years the six states of the Gulf Co-operation Council (GCC) have showered cash on their citizens in the hope they will not campaign for democracy. But now that oil—the main source of revenue for the GCC—has dropped to below $50 a barrel, budgets crafted in the days of $100-plus barrels no longer add up. Austerity of sorts beckons. A decade of oil prices seesawing upwards encouraged government largesse on a scale that now looks unsustainable. Lavish spending on social goodies, such as health care, education and fuel subsidies, rose further after the unrest that swept the region from 2010. Add in the cost of prestige projects prized by local potentates and it is easy to see why budgets have required ever-higher oil prices to balance (see chart).

Saudi Arabia, the GCC’s largest economy, needs oil at over $104 to break even in 2015, according to analysts at Deutsche Bank. A foreign-reserves buffer of $900 billion will provide a cushion for three years at current spending. But other countries have a lower pain threshold: Oman is one country already in debt and talking of borrowing more by issuing bonds.

Up to 80% of the regional governments’ income comes from hydrocarbons, with customs duties and taxes on foreign corporations only contributing small amounts. Taxes, where they exist, are hardly burdensome. That may need to change.

None of the GCC states taxes locals’ pay, although Saudis must give 2.5% of their income as zakat, alms in Islam. Foreigners are lured by salaries untouched by the taxman. Local businesses pay no tax in Saudi Arabia, Bahrain and the United Arab Emirates (UAE); and only low rates in Kuwait, Qatar and Oman. Even non-oil foreign firms get off lightly. Saudi imposes a 20% tax on foreign companies and Dubai (part of the UAE) 20% on foreign banks only.

But governments are mulling fresh ways of raising revenue. Oman’s Majlis al-Shura, an elected consultative body, recommended a new 2% levy on remittances from its 1.9m expatriates. It also wants to double the royalty on mineral trade, to 10%, and introduce duties on gas exports.

Even before the oil price started tumbling in the second half of 2014, reports in UAE media said the government was studying what effect taxing companies would have (though it was keen to stress it wouldn’t burden individuals). There is also talk of introducing a long-mulled value-added tax across the GCC.

Given oil revenues, taxes have been more of an afterthought than a budgetary imperative. An amount equivalent to just 2% of Oman’s GDP is collected in tax, for example, compared to 25-40% in rich countries. Much of the non-oil revenue, such as Saudi Arabia’s income from the haj pilgrimage, is dependent on state spending, itself paid for by oil and gas receipts.

Since keeping citizens happy rests on government handouts and the GCC states don’t want to deter business, cuts to other expenditure are more likely. Many flashy projects were shelved during the last drop in oil prices in 2009. Spending nowadays focuses on maintaining social stability. Public sector jobs and wages have increased in recent years, and will be as hard to cut as subsidies for fuel and food.

“We see taxes as an option of last resort for the GCC but eventually I think some might have to go down this road,” says Steffen Dyck at Moody’s, a ratings agency. Value-added tax and excise duties may be the first port of call. If oil continues on its current trajectory, they will not be the last.