In relation to yesterday's decision of the Union of Cyprus Municipalities to reject the Government's proposal for the mechanism for the adjustment of the annual state grant, the Ministry of Interior clarifies the following:
First of all, it is recalled that the amount of €117 million, which was determined in the Municipalities Law of 2022 as the annual state sponsorship, was incorporated into the legislation during the discussion of the bill in the context of the reform of Local Government, following the consent of the Union of Cyprus Municipalities.
However, the Government was the first to acknowledge that the amount of state subsidy cannot remain stable over time, but should be adjusted taking into account the evolution of economic and fiscal data, including inflationary pressures. For this reason, the Ministry of Interior, in cooperation with the Ministry of Finance and after consultations with the Union of Cyprus Municipalities, proceeded to the formation of an objective and predictable mechanism for the adjustment of the sponsorship.
In addition to the planned state grant of €117 million, the Government approved, at the request of the Union of Municipalities, the granting of additional amounts of €15 million and €12 million annually for the maintenance of primary roads and for the loss of revenue from the licensing of development, respectively. It is underlined that the amount of €15 million was determined after a study by the Union of Municipalities itself and is five times the initial estimate of €3 million.
With the proposal of the Ministry of Interior, the three grants (€117 million + €15 million + €12 million) are consolidated into a single state grant, totalling €144 million, ensuring these amounts and satisfying a relevant request of the Union of Municipalities.
As a result, the total state grant to the Municipalities is now €144 million, compared to €70.8 million previously, recording an increase of 103.4%. In other words, it is a doubling of the total state sponsorship to the Municipalities.
In light of the above, the claim that the Government is transferring the cost of the reform to the citizens does not correspond to the real data. On the contrary, the State has significantly increased the resources it allocates to Local Government, while assuming a significant part of the costs incurred from the implementation of the reform.
As far as the proposed mechanism is concerned, an institutionalized adjustment of the grant is provided on the basis of an objective fiscal indicator, which takes into account the course of the State's net primary expenditure. In this way, it is sought on the one hand to maintain the real value of state support to the Municipalities and on the other hand to be compatible with the financial capabilities and obligations of the State.
It is indicative that, based on the proposed mechanism, the total state grant is estimated to increase from €148 million in 2027 to €160 million in 2030, i.e. by an additional €12 million. At the same time, the three-year adjustment allows the Municipalities to know in advance the amount of state sponsorship and to plan their financial and operational needs more securely.
The Government has proven in practice that it supports the reform of Local Government and the financial viability of the Municipalities. This support is reflected in the doubling of state sponsorship, the assumption of additional financial obligations, but also in the continued significant state contribution for the implementation of development projects in the Municipalities.
