Tax hikes to cut budget deficit

CYPRUS Finance Minister, Charilaos Stavrakis has put forward a series of measures designed to bring the Island’s 2011 budget deficit within the European Union limit of 4.5%. The budget deficit currently stands at 5.4% and the government is looking for a further €150 million to plug the gap.

Measures under discussion include:

• A new tax calculation system for large landowners.

• An increase in the Corporation Tax paid by Cypriot companies.

• Some form of taxation on the banks.

• Tax hikes on cigarettes and alcohol.

• Imposition of 5% VAT on foodstuffs and pharmaceuticals.

• Measures to restrain the state payroll.

• Review of the public and quasi-public sector pension and bonus systems.

Pushing through these measures with government coalition partners will be difficult.

According to press reports, DIKO spokesman Fotis Fotiou has made clear that his party will not approve what it rejected three months ago (the increase in Corporation Tax and the taxation of properties).

Just a few days ago, the civil servants union PASYDY boycotted a meeting between the Finance Minister and the unions. Its head, Glafcos Hadjipetrou, refused to attend the meeting accusing Mr Stavrakis of showing “contempt” for the powerful union.

Whatever the outcome of the negotiations, you can be sure that the cost of living in Cyprus is set to rise. And those who have bought property from ‘large landholders’ and who have yet to receive their Title Deeds could well see their costs rise as developers try to minimise the impact of the new taxes.