By Hamza Hendawi
IT WAS showtime and everything was just right: a posh setting and a select audience of bankers, diplomats, economists and industry captains.
So when his turn came, a smiling Christodoulos Christodoulou cheerfully walked to the podium to give his address, beginning with an expression of his “profound joy at being given the opportunity to speak”.
The Finance Minister then went on to speak of the “dynamism” of the island’s economy and what he called the government’s expanding fiscal policy to enhance economic activity during a slow 1997.
“The fiscal deficit on its own is not enough to judge an economy in its entirety. Our other indicators are very good and prove we have macro- economic stability,” he asserted last Monday at the opening day of a business conference organised by the prestigious ‘The Economist Conferences’.
But by Thursday evening, the Christodoulou brimming with confidence was nowhere to be found. Gone too were the chic surroundings of the Nicosia Hilton’s banqueting hall and the niceties of conference participants glad to be spared another grinding day at work.
In their place was a sometime sullen and sometime smirking Christodoulou, the shabby, fluorescent-lit inside of the House of Representatives building, and deputies smelling blood.
Throwing to the wind an election promise not to increase taxes in 1998, the Finance Minister took to the house a five-part package of hard-hitting tax hikes that he thought he could sell as the only way to narrow the deficit and refill the state coffers.
He was wrong, and his blunder landed the government in its worst domestic policy crisis since President Glafcos Clerides first took office in 1993, straining relations between Clerides’ Disy, the senior coalition party, and junior partners socialist Edek and the United Democrats.
The two junior coalition partners, arguing that they were not adequately consulted on the measures in advance, joined the opposition in throwing out the one part of the package on which a vote was taken on Thursday night.
“The minister did not handle the matter very well,” Diko stalwart Tassos Papadopoulos told the Cyprus Mail.
“He could not have discussed the specifics of a taxation bill beforehand, but he could have generally explained the state of the economy and government finances with everyone before he brought it to the House.”
Opposition deputies, some clearly taken back by the severity of the proposed tax increases, had a field-day in the debate which preceded Thursday’s vote.
Some ridiculed the government for repeated references to the need to comply with Maastricht criteria, accusing it of hitting the poor to solve an economic crisis and blatantly reneging on an election promise.
Christodoulou has responded to references to that pledge as a “simplification” of issues, citing what he called an “unexpected development” for the resounding defeat of the government in the House.
His argument, however, appears to have cut no ice.
“The government in the run-up to the (presidential) election last February told us that the economy was in a good shape. So, if they could not project a couple of months ahead, then I am sorry, but we have a serious problem here,” said Neophytos Neophytou, managing-director of AAA United, a leading stock brokerage.
“The whole thing was badly timed,” he said.
Also speaking to the Cyprus Mail, other economists, analysts and businessmen criticised the package for its failure to take steps to curtail public spending and for its lack of a comprehensive approach to what they see as structural problems with the economy.
“They should control their spending first and issue measures to protect those with limited income before they raise taxes,” said Yiannos Andronikou of Suphire Securities, a Nicosia-based brokerage.
“I think the package represented the wrong approach,” declared Andreas Theophanous, an economics lecturer at Nicosia’s Intercollege.
“The economy needs a total package. You cannot raise taxes in a package like this without first redressing the structural problems in the economy,” he said. “There is also a lack of a long-term strategy in my view.”
Prominent businessman Constantinos Lordos also declared himself against the government approach. “As long as government spending is not curtailed by cutting down the size of the government machinery, the new tax measures will provide only a temporary solution,” he said.
“Fiscal problems will be eased temporarily, but before long the government will have to resort to new tax hikes and more public borrowing, thus traumatising the economy irreparably,” he added.
