By Hamza Hendawi, Business Editor
THE GOVERNMENT of President Glafcos Clerides was dealt a humiliating defeat last night when deputies voted down proposals for biting tax hikes designed to reduce a spiralling fiscal deficit and replenish state coffers.
The defeat was particularly embarrassing for the government since deputies from junior coalition partners – Socialist Edek and the United Democrats – joined the opposition in rejecting the proposals, leaving President Clerides’ Disy party alone in supporting the tax increases.
Last night’s vote – 32 against, 17 for and one abstention – also handed Finance Minister Christodoulos Christodoulou a personal defeat that might in the long run prove costly to his career and raise serious questions about his political judgment.
“The government is trying to solve the economic crisis by shoving its hands deeper into the pockets of the poor,” declared Demetris Christofias, leader of the Communist Akel party which voted against the proposals.
“We will vote against this to help the honourable minister keep his promise, ” said Akel deputy Kikis Kazamias. He was referring to a pledge not to increase taxes made in the run-up to last February’s presidential elections.
A Disy stalwart and a close confidant of President Clerides, Christodoulou is the architect of the proposals, adopted by an emergency cabinet session yesterday morning. Five of the cabinet’s 11 ministers were abroad, leaving only six attending.
Christodoulou had made no secret over the past few weeks that he was putting together a package of measures aimed at reducing the deficit, currently running at five per cent of GDP but expected to hit seven per cent by the end of 1998 if nothing is done to arrest its growth.
Sensing a certain defeat and the need for immediate damage -limitation, Disy leader Nicos Anastassiades returned to the podium shortly before last night’s vote to tell deputies that Christodoulou had pledged to him more consultation with coalition parties in the future.
“It’s not nice to be disliked,” said the Disy leader in acknowledgement of the unpopularity of the package. “But it is better to be responsible. Today, we don’t want applause.”
Christodoulou submitted to the House a five-part package of tax hikes. A brief plenary session earlier yesterday evening decided to refer them to the Finance Committee for discussion, but ordered it to debate immediately and report back to the House on one part of the package.
The part discussed yesterday proposed increases in the price of fuel and cigarettes, and duties on the imports of second-hard cars and all-terrain vehicles. It was designed to bring the treasury ?25.3 this year and ?44.5 million annually thereafter.
The proposal was later debated by the house for more than two hours until 9.30pm when a vote threw it out.
Another proposal voted down was tabled by Tassos Papadopoulos of the opposition Diko party suggesting that the house adopt the part discussed by the Finance Committee for one month only, to allow adequate time for debate before a final vote is taken.
The four other parts of the package, according to a government document distributed at the House, feature an increase in value added tax to 12 per cent from eight per cent, and the introduction of a five per cent VAT on goods and services which are currently exempt. They also include the return from July 1999 of a three per cent tax to services offered at public establishments certified by the Cyprus Tourism Organisation and the removal of duty exemptions currently enjoyed by some semi-governmental organisations.
Also in the package is a 35 per cent increase, effective January 1999, in charges for vehicle registration and a ?5 monthly tax on mobile phones.
The government document said that, if adopted, the proposals would leave the fiscal deficit at 5.00-5.5 per cent this year, reduce it to 3.5-4.00 per cent in 1999, and to three per cent in 2000.
“It is time to increase income, reducing deficit to give convincing proof to the European Union that the course of accession is being followed with practical measures,” Christodoulou told the Finance Committee. Accession talks between Cyprus and the EU began in March.
There have been no new taxes since 1993, he argued.
The minister, who looked distinctly uneasy during most of last night’s proceedings, later tried to take the defeat in his stride and even put a brave face on it.
Describing references by deputies to the election promise on taxes as a “simplification”, he was quoted by the Cyprus News Agency as saying: “The essence of the question is whether or not there is a need for more revenue in order to continue government policy.”
The island’s economy is healthy, he said, and the fiscal deficit was not the only criterion on which it should be judged.
