Get ready for new tax hikes

AN INCREASE in taxation of Cypriot companies and banks as well as hikes on tobacco and alcohol, could be included in a package of measures to plug a €150 million hole to keep the budget deficit for 2011 within the limits set by the European Union, the finance minister said yesterday.
“The probable measures include a possible increase in tax on Cypriot companies, some form of taxation on banks, a review of tariffs on real estate …(and) possible tax on tobacco and
alcohol,” said Minister Charilaos Stavrakis.
He also said a minimum 5.0 per cent VAT on foodstuffs and pharmaceuticals was on the way under EU regulations.
Stavrakis said talks were underway with the coalition parties in a bid to raise the cash needed to plug the hole, and to meet the EU commitment that the deficit will not exceed 4.5 per cent.
The projected public deficit, without any measures to reduce it, will be 5.4 per cent, according to the budget presented by Stavrakis on Wednesday.
“An intensive dialogue has started between the coalition parties in a bid to arrive immediately at a comprehensive package of measures to cover that target,” Stavrakis told reporters.
Measures under discussion include an increase in corporate tax only affecting Cypriot companies, some form of taxation on banks, a new tax-calculation system for large landowners, tax hikes on tobacco and alcohol, and measures to contain the state payroll.
In July, parliament rejected by majority vote a raft of government measures to stimulate government revenue, including an increase in corporate tax that did not make any distinction between local companies and offshore.
Earlier yesterday, Stavrakis called for a review of the public and semi-public sectors’ pension and bonus system.
“I believe the whole benefits, pensions and bonus system of all state officials (including ministers and deputies) – should be reevaluated,” the minister said. “(State) pensions are probably the biggest problem facing the Cypriot economy.”
During the presentation of the budget on Wednesday, the minister described the system as a time-bomb.
The issue came to the fore when the civil servants union PASYDY reacted to government intentions to cut tax-free personal allowances of ministry permanent secretaries, arguing that this would mean a lower pension and bonus.
The decision to include the personal allowance in the calculation of the bonus was made by this administration in 2008 – two years after a similar decision was taken by the previous government regarding ministers and MPs.
“Looking back, with today’s conditions, the decision we made in 2008 was not right and this is why we are trying to change it,” Stavrakis said. “In this critical period we feel that this needs to change as do many other things that concern wage increases and mainly the whole pension system of the public and semi-public sectors.”
The minister’s mea culpa was not enough for the chief of PASYDY Glafkos Hadjipetrou.
“He should have said something else: because we made a mistake, we the ministers renounce this right as it clashes with logic and is a provocation for the public,” Hadjipetrou said.
The minister would have been believable, serious, and PASYDY would have taken it into serious consideration, Hadjipetrou said.
“The same messages should have been given to deputies. You cannot get an allowance because you have a personal assistant; you cannot get an allowance because you buy people coffee.”