Filenews 28 August 2022 - by Eleftheria Paizanou
With the resumption of the work of the House, the agenda of the House Standing Committee on Finance will be burdened. From the first sessions, the Commission will be faced with serious issues, which affect thousands of citizens and businesses.
On the one hand there are the bills concerning tax changes, as well as the pension, and on the other hand it will be the (pre-election) discussion of the state budget for 2023, as well as the budgets of semi-state organizations. The discussion of the state budget is expected to begin in October, so that it will be put before the Plenary around mid-December. This year, the budget debate will take place in the shadow of inflation, the intense inflationary pressures on citizens and businesses, as well as the energy crisis as a result of the war in Ukraine. And of course, the upcoming presidential elections.
As the data show, 2023, mainly due to exogenous factors, will be particularly difficult, which is why, as we were told, the parties will demand from the Ministry of Finance that financial support measures be included in the budget. However, due also to the presidential elections in February, the debate will be of particular interest.
It is also estimated that the number of freezes (strangulations) and cuts of funds will be limited, as no party would like to start governing the country with "lame" budgets. In relation to the budgets of legal entities under public law, those of them that are submitted to the Parliament will be discussed immediately, so that they can start the new year with their budgets voted on.
It should be noted that opposition parties will also seek to promote legislative regulations concerning the legal framework of foreclosures. Due to the fact that during the last freeze on foreclosures, until the end of October, approved by the Parliament, the President of the Republic did not proceed to the referral of the law, an attempt will be made to suspend the legislation for a longer period of time.
They will seek to find a formula for VAT
In relation to legislative work, the Members of the Commission will make an effort to close, as soon as possible, the major issue of reduced VAT on the purchase or construction of a primary residence. The completion of the discussion of this bill, which has been in the House for almost a year, is one of the priorities of the Finance Committee. Especially after the publication of the report of the Audit Office on golden passports, which found that 1,298 investors under the Cyprus Investment Program made use of 5% of the VAT, resulting in the state losing €204 million, the Parliament will seek to find the formula that satisfies everyone, so that the bill can be approved. The aim, as we have been told, is not to wrong the young couples who will now start their life together. In fact, the adoption of this bill will also be a response of the Republic to the process initiated a year ago by the Commission against Cyprus. Already some of the members of the Commission, which will start its work on 5 September, are demanding that this bill be one of the first issues to be discussed.
The bill provides for the imposition of 5% VAT only on the first 170 sq. m. of residences with a total area of up to 220 sq. m. and with a transaction value of up to € 350,000. Also, a reduced VAT of 5% will be imposed for the first 90 sq. m. of apartments, with a total area of up to 110 sq. m. and with a total value of up to € 200,000. It is also foreseen that the new legislation will apply after 30 November 2022. The previous bill, which was revised by the Ministry of Finance after the strong reactions that existed from those affected, provided for the imposition of a reduced VAT rate of 5% for houses with a maximum area of 140 sq.m.
On the table and the pension
The Finance Committee will also put under its microscope the bill concerning the creation of the new occupational pension benefit scheme for employees of the public and wider public sector. It is worth noting that this bill was submitted just one month before the closure of the Parliament for the summer holidays. Although the bill has been discussed three times, parties have reservations about the agreement that the Ministry of Finance has reached with the trade unions. However, both the ministry and representatives of the guilds had asked last July not to affect those who will retire until the end of August. It should be noted that the competent ministry considers that in case all the requests of those affected are met, additional financial costs and reversal in the government's plans will occur and would negatively affect the viability of public finances.
Release of all positions in the State
The Finance Committee will also take out of its drawers the bill that provides for the complete abolition of the bans on filling positions in the public and wider public sector, which have been applied since 2013, in the context of the memorandum of fiscal consolidation. Last April, the Ministry of Finance reached a relevant agreement with PASYDY, SEK and PEO for the repeal of the legislation and the agreement was reflected in the bill. Also, the bill includes a provision that will remove from the budgets the provision for a ban on filling vacant permanent positions of hourly paid staff. When the relevant bill is approved, for the first four months of each year, all positions of first appointment that are vacant or will be vacant by the end of the year will be published in the Official Gazette of the Republic by the HHRM. The Ministry of Finance maintains that by changing the procedure, the new positions will be checked through the annual state budget.
However, during the previous debates that took place in the Parliament, DISY MPs had expressed reservations about the bill, expressing concerns that with the new procedure there will be no control and the number of employees in the public and wider public sector will increase. In fact, they had called on the ministry's technocrats to submit data to clarify the exact number of employees of the state machine and the number of vacancies that exist in the public and wider public sector.
PENDING ISSUES
There will be a battle for reduced VAT
Despite the revision of the bill by the Government on the basis of wishes of the parties, parties and professional bodies still have reservations. The Ministry of Finance has already announced to the Parliament that it will not proceed with any more changes, as they may not be accepted by the European Commission, due to the fact that they may not be in line with the social character of the relevant Directive. On the other hand, ETEK is expected to forward to the ministry its positions in relation to the increase in the value of real estate and for differentiation of the square metres of apartments that will be subject to reduced VAT. In addition, it will submit suggestions in relation to the transition period. The ETSC's proposals will include an update of the values of the properties, so that they are in line with the current real values, as well as an increase in the properties that will be subject to the reduced VAT.
