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And this is just the beginning
UNDER THE threat ‘bailout or bust’, legislators yesterday approved the first batch of tax hikes and salary cuts, giving Cypriots a glimpse of even tougher times ahead.
The three items passed by the plenum relate to tax hikes on tobacco and alcohol, an increase in VAT, and across-the-board salary cuts for the broader public sector – and that’s just for starters.
The whole situation proved too much for President Demetris Christofias who burst into tears last night during an address he gave at left-wing PEO union, promising to continue to fight for the workers “until his last breath”.
All three bills were passed by unanimous vote yesterday. Despite gripes over being backed into a wall, opposition deputies nevertheless seemed to recognise the sense of urgency, imparted by Finance Minister Vassos Shiarly earlier in the day when he addressed parliament on what he called the “most crucial budget ever”.
“There is no longer any room for complacency, neither personal nor party aspirations,” the minister warned deputies.
The permanent secretary of the finance ministry Christos Patsalides had sent the same message to MPs during the House finance committee in the morning with a stark plea: “Passing the bills is vital, it’s either this or bankruptcy.”
Patsalides also warned deputies the items should be passed ‘as is’, adding that there was simply no leeway for amendments.
“It’s by no means the end of the road. Many other bills are on the way, and this is just the beginning when it comes to implementing the memorandum,” DIKO MP Nicholas Papadopoulos said, alluding to the fiscal and budgetary measures the government has agreed to in exchange for a multi-billion loan from the EU and IMF.
The approved bills provide for the tax on rolling tobacco to be increased to €150kg from €60kg, almost three times the price, and for packet cigarettes to €2.43 for 20 from €2.20 for 20. That’s expected to fetch the state some €22 million. Cigars are not affected.
Alcohol is also set to become more expensive: tax on beer will rise to €6/100 litres from €4.78/100 litres. This means a bottle of 0.5 litres with an alcohol content of 5 per cent would be taxed €0.15 instead of the current €0.12.
For spirits, the tax will go up to €956.82/100 litres from €598.01/100 litres of pure alcohol. By way of example, a litre of Zivania would now cost €3.83, up from €2.39. Wine and Commandaria remain unaffected. The projected revenue is €10 million.
Significantly, the law includes a provision empowering the finance minister to adjust the rates on the basis of the consumer price index by issuing a decree.
The second bill relates to VAT, to rise by one percentage point to 18 per cent as of January 1, 2013 and a further rise to 19 per cent on January 1, 2014.
The reduced VAT rate will also rise by one percentage point to 9 per cent as of January 1, 2014.
Thirdly, parliament passed salary and pension cuts for public-sector workers, effective immediately. With retroactive effect, as of December 1 this year, there will be a scaled reduction in emoluments of public and broader public sector pensioners and employees as follows: €0-1000: 0 per cent; €1001-1500: 6.5 per cent; €1501-2000: 8.5 per cent; €2001-3000: 9.5 per cent; €3001-4000: 11.5 per cent; above €4001: 12.5 per cent.
And as of January 1, 2014 salaries and pensions will see an additional reduction of 3 per cent across the board. These cuts will generate annual savings of €201 million as of 2013.
Twenty-five more government bills are set to be submitted to parliament. In total, the government has drafted 28 items of legislation which must be enacted by December 13. The administration is hoping to score points with eurozone finance ministers before the next meeting of the Eurogroup that is scheduled to discuss Cyprus’ bailout.
Lawmakers will be racing against time this week and the next, and an extraordinary session of the plenum is likely to be held on Wednesday to pass the remaining bills.
Speaking after the session of the House Finance Committee, DIKO’s Papadopoulos said it was practically impossible to amend the bills due to the time factor.
“Any changes would mean we’d have to go back to the troika and re-negotiate with them…that would require additional time, and there is none,” he said.
The government applied for EU assistance back in June, only reaching a preliminary deal with international lenders late last month.