Government has to raise taxes but cut costs too

WHAT are we to believe? “No taxes will be imposed,” says the Commerce Minister, putting claims to the contrary down to “irresponsible partisan politics”. His comments seemed to echo the “exasperation” of the President, who last week blasted the leak of a Finance Ministry report on proposals to raise taxes, saying it was nothing more than a preliminary study.

Yet that same president this week told Simerini the following on how he planned to tackle the fiscal deficit: “There is no other measure: it is taxation… There is salvation through taxation and only fools would not impose taxes.”

So is Commerce Minister George Lillikas a fool? Are we led by a government of fools, who for months scoffed at suggestions that the only sure way to raise revenue was through added taxation?

Not that the opposition is any better, with DISY accusing the government of stealthily planning an “unbearable” tax onslaught that would bring the Cypriot people “to their knees” – as if they would do any differently were they in power.

The government is now paying the price for years of populist spending, for a bloated civil service and for a massive defence budget that serves very little real military purpose, coinciding with a squeeze on tourism and a shift to indirect taxation at a time when consumer spending is slowing down.

So yes, Tassos Papadopoulos is right, taxes have to be an option, especially as the government insists it will meet the target for eurozone membership by 2007. For too long, the government has spoken only about tinkering, things like improved tax collection or a crackdown on fraud. They will help, but they will not rein in the public deficit.

But while the government may well have to bite the bullet on tax – probably indirect rather than income tax – it needs to look at expenditure as well as revenue. Any company going through hard times will clearly look at ways of increasing revenue, but it will above all look at cutting costs, starting with its wage bill. Cyprus needs to do the same.

The president admitted this week that the civil service wage bill accounted for 42 per cent of the budget – the highest in Europe. We simply cannot afford this, and waiting for natural wastage through retirement is not going to do the job. If it cannot scale down its operations, the government has to consider outsourcing services, it has to consider privatisation of certain departments.

This may be anathema to a government backed by the communist party AKEL, but it is the only way to bring the budget back into line. Or would the government prefer swingeing rises in income tax at a time when the cost of living appears to be rising by the day?

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.