By Hamza Hendawi
FINANCE Minister Christodoulos Christodoulou was savagely rebuked yesterday over his grossly miscalculated attempt to push through the House a package of tax increases, a blunder which caused acute political embarrassment to President Glafcos Clerides’s coalition government.
Arguably the most influential member of Clerides’s 11-man cabinet, the minister was the target of scathing attacks by politicians from all quarters, including his own Disy party — the senior coalition partner in the Clerides administration.
Christodoulou’s handling of the tax increases was also criticised by the influential Chamber of Commerce, an avid supporter of Clerides. It seized the opportunity to repeat its demands for structural changes in the public sector and curbs on its mushrooming payroll.
There was, however, no sign that Christodoulou might resign or be demoted, although analysts expected his name would long be linked with the government’s most humiliating defeat on domestic policy and that questions about his political acumen would linger.
Deputies on Thursday night threw out proposals by Christodoulou to raise taxes in order to close a growing fiscal deficit and bring additional revenue to the treasury. The defeat in the house was especially painful for the government since junior coalition partners — socialist Edek and the United Democrats — joined the opposition in voting down the proposals.
Deputies from the two parties argued that they had not been adequately consulted in advance and that the draft bill reneged on an election pledge not to raise taxes in 1998.
Their stance left Disy in the embarrassing position of being the lone supporter of the doomed bill. The vote was 17 in favour, 32 against and one abstention.
Christodoulou, however, appeared unperturbed by the political storm raging around him yesterday, and even put on a remarkable display of defiance and bravado.
“I would not want at the present stage to express a view or an opinion regarding political responsibility. But what I can say is that if there is any responsibility as far as my person is concerned, you know very well that I am not the kind to avoid it,” he told reporters at the Foreign Ministry, where he is standing in for Yiannakis Cassoulides, who is abroad.
“You cannot be a minister of finance and be pleasant because the job is usually to say ‘no’,” said Christodoulou, who blamed rejection of the package on what he called an “unexpected development”.
Asked whether he thought he still retained the confidence of President Clerides, he said: “I am not the right person to be asked” and declined to say whether Thursday’s events presented the governing coalition with a crisis.
Disy stalwart Christodoulou was also criticised by his party chairman Nicos Anastassiades, who said: “There was possibly a need for more consultations with our (coalition) partners, but also… with the opposition. It was possibly an error of judgement.”
Thursday’s vote, he added, brought to the surface what he called an old problem of communication between Disy and the government, on one hand, and Disy and Christodoulou on the other.
Speaking after a meeting yesterday morning with President Clerides, which was also attended by Christodoulou and Alexis Galanos, chairman of the House’s powerful Finance Committee and a government supporter, Anastassiades complained that Disy was called upon by the government to support the proposed taxes but had not been given any details.
Criticism of the handling of the tax package also came from the communist Akel party and socialist Edek, whose deputies lambasted the government in media interviews for what they called misleading statements on the state of the economy made in the run-up to February’s presidential election.
Galanos suggested that a consensus on economic policies should be achieved, adding that: “The whole exercise was ill thought out and there should have been more effort to negotiate beforehand.”
Christodoulou had publicly stated in recent weeks that he was looking into measures to reduce the fiscal deficit, currently running at five per cent of GDP but estimated to soar to seven per cent of GDP by the end of 1998 if nothing is done to curb its growth.
On Thursday, he submitted to the House a five-part package of tax hikes, four of which were referred to the Finance Committee. The fifth, proposing increases in the price of fuel, cigarettes, duties on the import of second- hand cars and all-terrain vehicles, was thrown out on Thursday night. It was designed to bring the treasury £25.3 million this year and £44.5 million annually thereafter.
The four other parts of the package, according to a government document distributed at the House, proposed an increase in value added tax to 12 per cent from eight per cent and the introduction of five per cent VAT on goods and services which are currently exempt. They also included the reintroduction from July 1999 of a three per cent tax on services offered at establishments certified by the Cyprus Tourism Organisation and the end of duty exemptions enjoyed by some semi-governmental organisations.
Also in the package is a 35 per cent increase effective from January 1999 in charges for vehicle registration and a £5 monthly tax on mobile phones.
If adopted, the measures would have limited the fiscal deficit at 5.00-5.5 per cent of GDP this year, reduced it to 3.5-4.00 per cent in 1999 and to three per cent in 2000.
