The wealthiest owned 66.8 per cent of the island’s net personal wealth in 2023

The rich are having a disproportionately large impact on economic activity, spending and saving behaviour throughout the world. The wealthy with their political influence and control over financial resources are serving themselves at the expense of workers and ordinary retirees, while contributing significantly to moderating real GDP growth. Across the world the rich have prospered, while workers can no longer afford to buy what they produce and have been forced into higher levels of debt.

Great wealth concentration exists in many countries with the most publicised case being the US where it is estimated that the wealthiest top 10 per cent of the population held nearly 70 per cent of the net personal wealth in 2023. Comparable estimates for Cyprus based on the “World Inequality Report, 2024” of “Credit Suisse” indicate, most strikingly, that the wealthiest 10 per cent of the population owned 66.8 per cent of the country’s net personal wealth in 2023.

The influence of the rich on real economic activity and income and wealth inequality is profound and can occur through various mechanisms.

Most of any country’s saving is done by the wealthiest people. But the rich are obsessed with staying rich and protecting their savings in ways which are unproductive including the funneling of money into offshore accounts. The result is that they drain economies of productive expenditure and capacity and accordingly shrink real GDP growth.

In the United States and the United Kingdom, for example, many of the very wealthy can’t absorb all their money from charging rents and living off investment income and interest, while others such as CEOs of large companies are unwilling and/or unable to spend much of their huge incomes and bonuses in productive investments and consumption. That is, they don’t return this money to the rest of the population, that paid the rents and produced the goods and services from which the rich extracted income in the first place, by spending and adding real value to the economy. Instead, the very wealthy, while engaging in some conspicuous consumption, mainly hoard the money and are very concerned to keep themselves in the pecking order of wealth.

In Cyprus where the rich include CEOs and executives of large companies, double-jobbing politicians and other wealthy professionals, the situation is somewhat different. The large incomes of the Cyprus rich are derived mostly from the sizable profits of companies with lowly paid employees in the retail, property development and tourism/hospitality sectors. And these incomes of the wealthy are to a considerable extent saved, sometimes placed offshore in assets, and hence are not returned in sufficient domestic spending to support the growth of real economic activity. However, the spending of foreigners on tourism services, consumer products and the new properties of Cyprus offset the deficient expenditure of the local rich and contribute to sustaining the growth of real GDP. 

In addition, the rich use their significant political influence to lobby for tax breaks and subsidies, advocate for policies and regulations that favour the wealthy, and employ their market power to set prices, limit competition and enable the exploitation of workers. Indeed, restricting competition and worker’s rights makes for a business environment that discourages entrepreneurship and innovation that in turn lessens the growth of productivity and wages of employees.

Notably in Cyprus three – now two – large banks, that were controlled traditionally by rich families, dominate the market. In the absence of competition these banks can set high loan rates and low deposit rates as well as offer sub-standard services and violate regulations without losing business. Moreover, they profit handsomely from imposing the highest net interest margins in the Eurozone and by extracting much interest income or “rent” from depositing very large amounts of their excess or productively idle reserves at the ECB.  

Furthermore, Cyprus banks by extending unaffordable loans to many borrowers, then recalling and selling impaired loans and their related property collateral to third parties at large discounts, are contributing significantly to increasing wealth inequality. 

The relationship between well-connected rich individuals and the allocation of resources is complex and can involve both positive and negative impacts. Individuals with much wealth and access to capital have in numerous cases, for example, entered into partnerships with the public bodies (PPPs) to invest productively in key infrastructure projects such as in efficiently building airports.

On other hand inefficient resource allocations have resulted in cases worldwide where the rich have used their wealth and influence to gain preferential treatment in the payment of taxes and debt and in acquiring access to key resources, a process that diminishes competition in favour of the rich.

In truth, the rich have the money to lobby and bribe bureaucrats to provide benefits and gain exemptions to satisfy their vested interests. Currently, in Cyprus, wealthy hoteliers have used their influence on government officials to continue to have access to scarce water at the expense of potato growers, who have been shut out from securing water for their crops.

In fact, many studies have concluded that wealth inequality contaminates the resource allocation process and further perpetuates wealth inequality.

A considerable part of the wealth of employees and the self-employed is accumulated through their contributions to pension and social security funds. The assets of these funds constitute workers’ capital and are intended to provide retirement, disability and survivor benefits, that is, deferred compensation for the sake of workers.

However, some of these funds, such as “Public Employees Pension Funds” in the United States that have over $6.0 trillion in total assets, invest massive amounts in rich-backed corporations and private equity companies that pursue policies that are counter to benefitting workers. In fact, these US pension funds often invest directly and indirectly in corporations, which oppose the formation of unions that empower workers to fight for better working conditions. 

In Cyprus the Social Security Fund (SSF) has regularly recorded considerable surpluses and the central government has borrowed from these surpluses to fund certain of its expenditures including the large deficits of the National Health Scheme. In effect, the SSF invests almost entirely in loans to the central government with the outstanding amount of “Social Security Investments” reaching €12.2 billion at end-March 2025. But, with this hijacking of the resources of the SSF there is the issue of whether this component of workers’ capital could be better invested to benefit workers, like in affordable social housing, rather than in effectively funding expenditures such as the ever-ending travel of President Nikos Christodoulides and his entourage of business associates.

Recommendations

In sum with the rich dominating economies worldwide over recent decades, real GDP growth has been stifled and wealth inequalities increased. This conclusion is largely in line with the central thesis of Thomas Piketty in his seminal book “Capital in the Twenty-First Century” that when the rate of return to capital is greater than the rate of economic growth over the long term, the result is concentration of wealth, and that in turn this unequal distribution of wealth causes social and economic instability.

In response to his findings Piketty proposes a global system of annual progressive wealth taxes of up to 2 percent combined with progressive income and inheritance taxes domestically to help reduce inequalities and avoid the vast majority of wealth coming under the control of a tiny minority. Piketty recommends also policy measures to improve the education and training of persons from lower-and lower-middle class households so as to enhance their ability to earn higher incomes and climb up the wealth ladder.

For Cyprus in order to substantially reduce wealth inequality there is the compelling need to get the rich to pay taxes according to “his means” according to Article 24 of the Constitution.

Cyprus now – in contrast to many EU countries – does not levy any wealth taxes that significantly impact the rich. This requirement would warrant the reintroduction of a central government progressive tax on immovable property together with a more progressive structure of personal income taxes. In addition, serious consideration should be given to the imposition of an inheritance tax so as to mitigate the transfer of wealth across generations.

Furthermore, as the rich engage prolifically in tax evasion and irregular practices in Cyprus, successful efforts in combatting such cheating should contribute to reducing wealth inequality and levelling the competitive playing field for business.

Finally, as contended in previous opinion pieces economic inequalities can be narrowed substantially by governments and private sector entities cooperating in undertaking sustained actions to create decent and secure jobs so as to enable a greater portion of the population to employ their skills to raise productivity, earn higher incomes and accumulate wealth.