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Troika reforms include property tax hike

Tax hikes on property, alcohol, tobacco, and petrol are on the cards plus a one per cent increase in VAT together with cuts in public sector spending according to a leaked Troika delegation document.

SWEEPING cuts to public sector wages and pensions and tax hikes are the likely targets for reforming the island’s shattered economy according to a leaked Troika delegation document.

The draft document, obtained by InBusinessNews, outlines a series of painful measures including a 15 per cent cut to the state payroll by 2013, a 10 per cent cut in benefits, and the abolition of public sector wage indexation, also known as the Cost of Living Allowance (CoLA).

According to the document, all civil servants will be made to contribute towards their pensions and will also have their salaries frozen until the end of 2015.

13th salaries in the public sector will also be axed.

In an effort to increase state revenues, the document outlines a series of tax hikes on property, alcohol, tobacco, and petrol. A one per cent increase on VAT to 18 per cent is also likely.

In addition, the Troika is also looking for continued efforts for fiscal consolidation, reducing the island’s deficit to 4 per cent of GDP in 2012 and to 2.5 per cent in 2013 and beyond by reducing the growth in spending on social services and state payroll.

In the leaked document the troika emphasises the need to improve tax collection, the administration of the public sector and the rationalization of the social benefits system.

Although Cyprus has asked Russia for a further €5 billion, Russia’s Finance Minister Anton Siluanov has said that a loan agreement with Cyprus was unlikely to happen in the near future.

Readers' comments

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  • Johnboy says:

    The Troika’s plans for saving The Cyprus economy seem to be along the correct route, however, this only gives an outlet for those responsible for getting us into this state in the first place. No matter who takes the presidential office at the next elections cannot stop the corruption and rot as it is too deep rooted throughout the island. This island is one big “family” run business and one cannot make any real personnel changes that would upset the order of the household purse strings, and to those who receive from it. So lets tax all the country more, thus causing more overpriced increases (than what they are already) and let it be seen that all of the population can pay for the “family’s” mistakes and indiscretions. Again!!

  • Steve says:

    The reluctance to pursue benefits cheats is paralleled and probably exceeded by the reluctance to do anything about the bloated, incompetent civil service with its unaffordable pension schemes and other benefits, not to mention the pay increases that have long ago become the norm in the Cyprus Civil Service and the political corps. The same trends are seen in S Africa and Greece among others, fuelled by politicians’ desire to build a loyal voter base, founded on financial gain, which is a downside of modern democracy.

    It will be interesting to see whether the Cyprus government continues to follow this vote buying strategy, when the future of the country is being risked as a consequence. Their attempts to borrow money from Russia and China suggest they will continue it.

  • Mike says:

    Nigel – How very true and I am sure benefit fraud is widespread in many countries. Sadly this one is very close to home and knowing the ‘Psyche’ as I do it is the mindset of the middle generation I am fearful of.

    You made my day with the report of the claims for blindness, allegedly 600 out of 650 being fraudulent. What kind of system of compliance permits that I wonder.

    At the end of the day it is those truly in need of the help that our taxes could bring that are being robbed of the help they deserve as is the taxpayer of course. Precisely why the government should have a system of policing in order to safeguard public finances. Perhaps I expect too much.

  • Gavin Jones says:

    Nigel.

    It’s not the fact that people lie, cheat or work the system in Cyprus any more than they do anywhere else.

    The problem is that there’s no will in Cyprus to do anything about it and throw the book at people who do transgress. And it’s not restricted to benefit cheats.

    Whenever anyone gets caught they get away with it: unauthorized teeth implant scandal by the Deputy Attorney General; Director of EU Presidency Office employing close relatives; Director of President’s Diplomatic Office and wife involved in conflict of interest issue with Chinese airport deal; tax evasion is a national sport with no comeback for those caught, not that anyone is ever chased to pay up; presidential pardons dished out like confetti; lawyers never struck off for negligence or fraud by the regulatory authority, the Disciplinary Board of Advocates. Even after the July 1974 coup, Makarios pardoned those involved. The list goes on and on.

    What this illustrates is that people can commit all manner of transgressions with impunity, secure in the knowledge that any punishment will be derisory – or non-existent. It also confirms that Cyprus is in effect a lawless society with no boundaries.

    If others feel otherwise, I very much look forward to reasons which substantiate that opposite view.

  • @Mike – benefit fraud isn’t only a problem in Cyprus. It happens in the UK as well – and is often reported in the media.

    It seems that some people will always try to cheat the system. Perhaps the difference in the UK is that benefit claims are investigated and the public is encouraged to report benefit fraud (confidentially) to the authorities.

    I have seen a number of reports that the Greek authorities are cracking down on benefit fraud – perhaps Cyprus will be encouraged to follow their example.

    Here’s a report from the Sunday Telegraph:

    Nearly 600 people on the Ionian island of Zakynthos managed to have themselves falsely declared blind, entitling them to fat monthly cheques from the state.

    They included taxi drivers, shopkeepers and restaurant owners, farmers tending the island’s patchwork of vineyards and olive groves, and a few amateur hunters, whose purported disability did not stop them from spending their weekends shooting rabbits and birds in the rugged mountains of the interior.

    Other “blind” locals have been seen cheerfully playing cards and backgammon in the tavernas and bars of the island. “Out of 650 registered blind people on the island, we estimate that at least 600 are fraudulent claims,” the mayor told The Sunday Telegraph in his office overlooking the boats crowding the port of Zakynthos Town, the main settlement.

    That represents nearly two per cent of the island’s population of 35,000 – nearly 10 times the average rate of blindness in the rest of Europe, according to the World Health Organisation.

  • Mike says:

    Now I will ask you – do you honestly believe that anything like this will ever be adhered to. It may well be agreed, but implemented and put into practice – I don’t think so.

    I know of a girl receiving €1,300 per month in benefits, is in receipt of a substantial (undeclared) inheritance, undertakes casual but lucrative paid work and claims to be disabled. I have known her from birth and her only disablement is self inflicted obesity due to overeating and taking no exercise. What is the incentive for someone like that to work and pay tax. Sadly there are thousands in similar positions so any measures will be difficult to implement until the mindset that the government will supply everything changes and that, I am afraid, is, with a few rare examples, inbred.

  • MARTYN says:

    So this is the one the President and his not-so-merry men have been ignoring, hoping it seems that his Russian friends will come up with monies, loans, whatever – sufficient to avoid having to take the EU bail out loans with all the ‘uncomfortable’ austerity requirements attaching to them. And, now, bit of a surprise?, his Russian friends seem to be having serious doubts about ‘doing the business’.

    This said, it looks like the Troika are working along the ‘right’ lines: major impacts on the massively overblown Public Sector, which the President seems intent on ‘not upsetting’ and a bit more pain, VAT increase, alcohol, petrol etc. which most of the rest of Europe have been suffering for some time already. Roll on February and lets hope we get a Government prepared to:

    a) seriously tackle the outstanding problems, banks, title deeds, moribund economy etc.

    b) support the medium-longer term projects, infrastructure, inward investment, gas/oil etc.

    c) set the Vision for a renewal of Cyprus’ strengths, capitalise on its strengths, natural assets to build a New and Much Better future.

    It could be done – but will it?

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