GOVERNMENT allies DIKO and opposition DISY alike have slammed the government’s latest package of economic measures, dubbing it poorly thought-out and counterproductive.
Ostensibly geared at boosting a sluggish economy and at the same time raising state revenues, the package consists of five proposals/bills: a one per cent hike on corporate tax for a period of two years; an increase in property tax to be levied on the 8,000 largest landowners; measures to crack down on tax evasion and tax avoidance; a general town planning amnesty; and a shoring up of public spending on benefits for large families and college students.
During a Q & A session at the House Finance Committee yesterday, Finance Minister Charilaos Stavrakis defended the blueprint, noting that the improvement of state finances “is a one-way street and a necessary precondition to achieve economic growth and prosperity for our people.”
Deputies from DISY, DIKO, socialists EDEK and the Greens have been extremely critical of the government proposals and, as it now stands, the package lacks the support to pass through parliament. DISY and DIKO in particular warn that raising corporate tax would force small and medium enterprises (SMEs) to relocate to a more favourable tax jurisdiction.
The main bone of contention yesterday was the proposal for “targeted social measures” envisaging the introduction of income criteria for recipients of benefits.
Stavrakis said its goal was to ensure that “millionaires, their children and wives, and persons with very high incomes do not receive benefits, which at the end of the day are paid for by the Cypriot taxpayer.”
Under the proposal, families with an income over €70,000 p.a. would no longer be eligible for benefits for large families or for student grants. The same benefits would also be cut in cases where a family has two members working in the civil service and receiving a pay grade of A8 (around €18,000 gross).
According to the Finance Boss, the measures would affect only about eight per cent of the population, that is, the richest people. “The remaining vast majority of Cypriots, 92 per cent, will continue to enjoy these benefits,” Stavrakis said.
This alone would generate savings for the state coffer to the tune of €24.8 million per year; the measure would be implemented starting in 2011.
While acknowledging that the shoring up of public finances is a priority, House Finance Committee chairman Nicholas Papadopoulos dismissed the government proposals as a damp squib.
Papadopoulos questioned the Finance Ministry’s figures on expected savings, noting for example that it was not clear whether the income criteria cited reflected gross or net earnings.
Moreover, the added administrative costs of tracking down all those families who are ineligible for the benefits would at the end of the day outweigh any savings, Papadopoulos said.
“Since the executive has decided to introduce new bills and different proposals to those which they initially communicated to us, DIKO’s support cannot be taken for granted,” the MP added.
Similar criticism came from DISY’s Averoff Neofytou:
“Instead of setting its sights on the wealthy, the government of Demetris Christofias is targeting wage-earners. The Democratic Rally remains steadfast in its position that social benefits should be wealth-oriented, and not income-oriented,” he said.
In a country with a deficit of €1 billion (2009), Neofytou said, it would be “naive” to think that the problems of the economy could be solved with savings of €20 million.
“In other countries, governments have contacts with the Central Bank, financial powerbrokers and political parties when they forge economic policy. This government has met with the union bosses and between them they have decided the country’s economic policy,” remarked the DISY deputy.
Neofytou slammed also the state’s recent announcement that it was borrowing another €500 million.
Only in mid-May, the Finance Ministry had announced that the €1 billion loan taken out in early 2010 was enough to cover public expenditures until the end of the year, Neofytou said.
“What sort of messages are we sending to markets abroad, and what transparency can we speak of, when before the cock crows thrice, on 15 May they were saying that we covered our needs for the year, whereas now, without parliament being informed, we have learned that the state has borrowed €500 more?”
