Cyprus Mail
Cyprus

The worst of both worlds in 2014

By Elias Hazou

RECESSION-hit Cypriots should brace for the worst of both worlds come 2014, as a decline in disposable income is coupled with a probable rise in the cost of living through a slew of tax burdens and salary cutbacks.

On January 1, the consumption tax on fuel will be jacked up by 5 cents per litre. Though the hike applies only to fuel used by motor vehicles (petrol and diesel), it will in all likelihood lead to an increase in the price of some consumer goods.

To avert profiteering from the new rate, petrol station operators must take an inventory of their fuel stocks on December 31 and submit it to the government.

Next, on January 13 the two VAT rates will rise from 18 to 19 per cent, and from 8 to 9 per cent, respectively.

Later in the year, a higher road tax will be introduced, and the Immovable Property Tax is also set to go up as that system is overhauled.

The levies are part of government efforts to meet public deficit (and long-term debt reduction) targets under a bailout deal with international lenders.

In addition to higher tax burdens, salary and pension cutbacks are on the horizon as the state strives to generate as many savings as possible.

In the broader public sector, in 2014 salaries get the chop by an additional 3 per cent flat rate.

An income-related special contribution – applicable to both the public and private sectors – will be implemented until the end of 2016.

The levy applies to people earning over €1500 gross a month: a 2.5 per cent contribution applies to the €1501 to €2500 bracket, 3 per cent for the €2501 to €3500 bracket, and 3.5 per cent to those making more than €3501.

Social insurance contributions are set to increase by one percentage point for private sector workers and 0.5 for public servants. Self-employed people will contribute an additional one per cent.

Whether or not stimulus spending is advisable, the cash-strapped government simply doesn’t have that option anyway. The 2014 budget has slashed state expenditures by €700m, including cuts to welfare spending.

The coming year is forecast to be the toughest yet, with Gross Domestic Product contracting by 3.9 per cent, and the jobless rate rising to a staggering 19.5 per cent. The public deficit is projected to come to 5.4 per cent of GDP.

 

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