Filenews 22 January 2023 - by Eleftheria Paizanou
The new government will be called upon to swim in deep waters, which will take over the governance of the country, after ten years, from Nicos Anastasiades. In the economy, the situation has clearly improved much since 2013, when this government took over, as Cyprus was one step ahead of the economic collapse. On its own, however, the improvement of economic indicators and the cushion that the Government will leave to its successors, are not enough to face the challenges that will be faced before the new Ministers of Finance, Labor and Energy.
Voters expect a lot from the candidates, who during the long pre-election period gave land and water. They expect them to deliver on their promises, some of which are very generous and may affect public finances. At this time, the country's liquid assets may be satisfactory, however, immediately the new rulers will have to take measures to deal with inflation.
From the first day they take over the reins of Cyprus, consumers will remain immune to inflation. This is because on February 28, the period of imposing reduced consumption taxes on fuel ends, while the subsidy of electricity by the state will be completed.
In addition to the solutions to be provided for the energy costs that afflict households and businesses, measures should be considered that will relieve consumers of the general punctuality, as the prices of many basic products are rising more and more, compared to last year. The new MIC should focus first on vulnerable groups, pensioners, residents of mountainous areas, family support and then on professional groups affected by inflationary pressures.
Especially considering that 2023 does not seem to be easy, due to exogenous and internal factors, which are likely to deregulate the Cypriot economy. Besides, for this reason a few days ago, the Ministry of Finance in a circular had called on all ministries, deputy ministries and independent authorities to implement a prudent fiscal policy and proceed with the implementation of development expenditure, which will contribute to the further recovery of the economy. Due to the uncertainty that seems to exist, the new finance minister will have to study ways to save public spending. Obviously it will not touch the state payroll because this will have an impact on consumption or even on labour peace, however, many other funds have room to be reduced. For example, it could start with a reduction in operating expenses in the budget, which the House did not cut off when approving the 2023 state budget. In addition, there are some funds that have been found to be wasted from time to time.
5% VAT MAIN RESIDENCE
Another big issue that the new Finance Minister will have to deal with is the imposition of 5% VAT on the purchase or construction of a main residence, an issue for which Cyprus risks the imposition of a large fine by the Commission and the Court of Justice of the EU, due to the abuse in the implementation of the relevant European Directive. In particular, the reduced rate should be applied for social purposes, however, in Cyprus almost everyone benefits from it. It is recalled that Brussels had given credit to the Republic until February 15, otherwise it will proceed to the next step of the infringement procedure, which is to take it to the Court of Justice of the EU. Due to the elections and the suspension of the Parliament's work, the Ministry of Finance will probably be able to justify the new delay observed and will gain time. However, depending on the candidate who will be elected, the manipulations that will be undertaken will also be carried out. In the event that Averoff Neophytou is elected, the Minister of Finance of his administration, which will be Konstantinos Petrides, will insist on the bill pending in Parliament and with which the European Commission also consents. On the other hand, if Nikos Christodoulides or Andreas Mavrogiannis are elected, given the positions of the MPs of the parties that support them, they may try to differentiate the bill.
Open-ended and foreclosures
At the same time, the new finance minister will also be faced with the big issue of the permanence of about 5 thousand people. employees of indefinite duration. PASYDY has commissioned a team of legal advisers to prepare a bill which once prepared will be given to the Ministry of Finance, which in turn will be sent for legislative review to the Legal Service. This is an extremely difficult task, as all attempts made in the past have clashed with the Constitution and European law. At the same time, the financial staff of the new government will have to solve the riddle of foreclosures. From the end of the month the law will come out of the refrigerator. In fact, due to the rise in lending rates, there is a risk that the number of non-performing loans will increase. The current opposition parties often demanded changes to the legal framework for foreclosures, which was opposed by the government, so they proceeded to constantly suspend the law. Along the way, it seemed that the constant freezing of auctions was not the solution to the problem. Logically, any actions implemented will be after the implementation of the Rent for Instalment Plan. In addition, a decision will have to be made on the foreclosure Court. The government proposal, although withdrawn after a year and a half, was found to contain unconstitutional provisions. And in this case all the current opposition parties, were in favour of strengthening the right of borrowers to have access to justice. In addition, efforts should continue to partially cover the losses of those who have suffered a deposit haircut.
PENSION PENALTY
Big issues are also open to the Ministry of Labour. The new head of the ministry, as soon as he takes office, will have to find the right balance for the ATA. The effort of the current Minister of Labor Kyriakos Kousios was wrecked and on Thursday the workers went on a three-hour work stoppage. And on this issue, depending on the person who will be elected, it will be the attitude that will be taken. Actions should also be taken to manage the request for the abolition of the penalty of 12% for those who retire at 63 years of age instead of 65.
Tax reform and other fronts
When the situation in the economy stabilizes somewhat, the new government will have to take decisions on tax reform, which did not go ahead due to the crisis that arose from the Ukrainian war. In the same context, green taxation should be promoted, tax cuts and the imposition of some taxes on specific categories of taxpayers should be considered.
A big bet for the new rulers will be the continuation of the reduction of public debt, the sustainability of the GHS and the implementation of a series of reforms approved by the Parliament, such as the reform of the Public Service, Local Government and the Judiciary. The other reforms and projects included in the National Recovery Plan, through which Cyprus will receive around €1.2 billion, should also be given a boost by the end of 2026.
