IF WE NEEDED additional proof of the government’s complete ineptitude in dealing with the long list of problems faced by the economy it was provided this week by Commerce and Industry minister Antonis Paschalides. The minister took great pride in securing ‘tacit approval’ from the EU for his proposed price ceilings (plafond, to use the term he favours) on basic goods, making out that this gimmick was a major breakthrough that would somehow improve living standards.
Plafond was the demand of “consumers, society and the political parties,” Paschalides said explaining that the relevant bill had also been given the go-ahead by the Attorney-general’s office and would be submitted to the Council of Ministers. We do not know the contents of the bill, but according to the minister, apart from stipulating the imposition of ceiling prices on bread, water and milk there was a provision allowing the extension of the price controls to other goods. What other goods or services he had in mind he did not say, but opposition parties are already talking about a plafond on electricity rates.
There are serious doubts that this misguided bill will get very far. Strong objections have already been voiced by the affected producers. A representative of the dairy farmers has quite rightly asked whether a ceiling price would also be placed on cattle fodder and electricity as well, while the head of the bakers’ association insisted that Cyprus bread was very cheap, considering it was made from durum wheat that was twice as expensive as white flour. Interestingly, only the standard loaf of bread would be subject to a price cap, so we should not be surprised if suddenly there are severe shortages – bakers could simply produce minimum amounts of the unprofitable bread. A black market in fresh milk could also develop if producers decided to reduce supply at the capped price.
These may seem extreme cases, but distortions are inevitable once the government starts interfering in the market, fixing prices and ignoring the forces of supply and demand. And for what? So we could pay a few a cents less for a litre of milk and a loaf of bread? We doubt that anyone’s standard of living would improve as a result of the price caps which are nothing more than a cheap political gimmick, aimed at limiting the bad publicity the government has been receiving for imposing VAT on food and medicine. Now the government and AKEL could once again pose as the defenders of the poor, in the run-up to the parliamentary elections.
The plafond bill might win a few votes but it also serves as reminder of the government’s abysmally poor record on the economy. It is much happier pursuing policies on trivialities, which might win votes, than tackling the big problems facing the economy. So we have the introduction of price-ceilings and hand-outs for low-income groups to counter the VAT on foodstuff, while the issue of constantly rising prices is ignored. It is now more expensive to have a meal or a coffee in Nicosia than it is in the centre of London or Rome. And this is a problem that is not fixed with price-ceilings.
As minister in charge of commerce and tourism Paschalides should have been looking at policies to restore our economy’s falling competitiveness, which has put the tourist industry in terminal decline and is now affecting the financial services sector, instead of pursuing plafonds. The government, with its command economy ideology, might not be aware of the importance of competitiveness, but Moody’s cited it as one of the three reasons it had placed Cyprus on review for a possible downgrade. It said it would assess “the country’s ability to address competitiveness challenges.” While the Cyprus government appeared to have time to address these issues, past experience showed that “these problems could become more immediate concerns.”
But to improve competitiveness would require unpopular measures – scrapping wage indexation, restructuring the public sector and making it efficient, cutting operational costs at state monopolies like the Electricity Authority – which the government has proved incapable of taking. Why bother with such difficult issues when it can deal with idiotic PR gimmicks such as putting a price cap on bread, milk and water and pose as the protector of the poor? The tragedy is that the only thing the government’s mismanagement of the economy would eventually achieve is a swelling of the numbers of the poor.
