More taxes, higher prices and smaller incomes in 2014 for Cypriotes

Our View: More taxes, higher prices and smaller incomes in 2014 An old man rummages through a bin in Nicosia this year. Next year could be even worse
THE MOST difficult year for the people of Cyprus since 1974, comes to an end on Tuesday.

This was the year in which most of the things we took for granted were shattered and all the certainties that fuelled our society’s complacency vanished overnight as the fragile foundations on which we had built our artificial affluence collapsed.

Unfortunately, we cannot say that the worst is over and that we can look forward to 2014 with even a hint of optimism.

On the contrary, the next year things could only get worse as the economy slips deeper into depression and the struggling banks and cash-strapped state turn the screw on businesses and individuals in their efforts to stay afloat.

An old man rummages through a bin in Nicosia this year. Next year could be even worse

Until now, the banks had been restructuring, arguing with the Central Bank over the definition of non-performing loans and trying to convince politicians that foreclosures were inevitable. Next year, they will focus on loan recoveries which would involve foreclosures, debt rescheduling and asset-stripping of debtors. The uncertainty that prevailed for most of this year, allowing many not to make loan repayments, is over and the banks are bound to become more forceful in their dealings with customers.

As for the state, apart from cutting 2014 expenditure by €700 million which will be felt throughout the economy, it will also be reducing falling disposable incomes with a series of tax measures. In the New Year we can look forward to a new five-cent per litre tax on petrol, higher road tax and an increase of both VAT rates. So in a depression, in which real incomes are falling, prices of basic goods could still rise.

There are more tax increases to look forward to. Social insurance contributions are set to increase by one percentage point both for employee and employer, in addition to an income-related special contribution by both employer and employee (presumably to cover the fall in income tax revenue, affected by falling wages). There will also be a levy on pensions, not to mention the Immovable Property Tax which was introduced this year and is set to be updated in 2014.

All this exposes the absurdity of our populist politicians’ decision to establish a solidarity fund. Are they thinking of even more tax hikes to finance the solidarity fund, because people cannot be burdened with even more taxation? The bill they recently prepared had no provision, with regard to where the money would come from, which would suggest the parties had understood that there was no more money to extract from people.

And this will be the problem in 2014 – there will be very little money in circulation as the banks and the state would be squeezing the last cent out of everyone. As regards the state, it would not have been so bad, if it was offering its impecunious citizens a high standard of public services, for the money it was taking from them. We may have been poor but not had to worry about our children’s education or our healthcare. The service are not just of a low standard but are not offered free of charge to everyone.

So in 2014 we can look forward to paying the state even more of our hard-earned money and receiving nothing in exchange. On the contrary we would be paying higher prices for food and transport in a contracting economy, so the high standard of living of public employees can be maintained and the government could carry on scandalously wasting money on needless defence spending.

The government can carry on being upbeat, releasing information that the economy is doing better than expected and citing the kudos it had earned from the troika about the steady ‘progress’ we have been making, but the reality is quite different and we fear it will take a turn for the worse in 2014, at least for ordinary people, not employed by the state.

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