COMPLAINTS are already being voiced about the negative effects of the electricity rates hike which was introduced this month. A 1.9 per cent hike has been imposed to cover the fines – in the region of €20 million – the Electricity Authority of Cyprus (EAC) has to pay for carbon emissions this year.
Business leaders have already issued warning that the price hike would simply be passed on to consumers, making many products even more expensive. Cyprus hotels and industry were already paying the highest electricity rates in Europe, said the chairman of the Employers and Industrialist Federation (OEV), Andreas Pittas who suggested funds for the fines were found from elsewhere.
The only problem is that there are no funds available. This was what made the populist proposal for lowering VAT on electricity bills, by DISY deputy Lefetris Christoforou so ludicrous. For a government desperately looking for ways to increase tax revenue, in order to exercise some control over the widening budget deficit, it would be disastrous to reduce VAT on electricity bills – this is ‘certain’ state revenue, efficiently collected by EAC. In fact the government would benefit from the hike in rates as higher bills mean higher VAT receipts.
Unfortunately, we should brace ourselves for another round of price rises (oil prices were increased as well which could mean even higher electricity bills), despite being in a recession. Cyprus will be in the unique position of having a contracting economy with rising prices. Not even the recession is likely to make our economy more competitive thanks to the local market’s inflexibilities.
It is hyprocritical for Christoforou for instance to complain about the rising electricity prices and demand a reduction of VAT, when it was he and his colleagues passed a law safeguarding EAC’s monopoly, because the unions were demanding it. A company that was willing to produce power using LNG and would have competed with EAC was stopped from doing so by the law passed by the House.
Pittas noted that EAC’s operational costs were “excessively high and high wages were being paid”. If EAC was not paying its workers outrageously high wages (the average annual pay is in the region of €50,000), it would have been able to cover the carbon fines without passing the cost on to the consumer. And if there was competition in the electricity market the Authority’s board may have had an incentive to control wages, instead of handing out annual bonuses to all its workers.
The sad thing is that electricity bills will keep on rising because no politician dares address the cause of the problem. Why would they when they can propose pathetic quick-fix solutions such as cutting VAT on bills?
