It did not take long after the increase in fuel prices, caused by the rise in international oil prices, for the familiar populism to commence. Diko deputy and chairman of the House commerce committee Angelos Votsis proposed that the government should reduce the tax on petrol to ensure against across the board price rises that would reduce people’s disposable income and undermine the competitiveness of businesses.
Higher petrol prices would have the effects Votsis spoke about, but he ignored certain basic facts. Cyprus is obliged to impose EU harmonised excise taxes on fuel, currently at 47.9 cents per litre, which is the lowest possible. This cannot be reduced and neither can the 19 per cent VAT on the sale price of fuel. So if the taxes cannot be cut because of EU rules there is no point in discussing Votsis’ proposal. He has nevertheless asked for a meeting with the finance minister to discuss the proposal that cannot be implemented.
The deputy has even used an orthodox economic argument to back his proposal. Lowering the tax would stimulate business activity and the extra tax revenue generated from this would offset the lower revenue from the fuel tax. There is no guarantee this would happen, which is why no prudent government would tamper with tax revenue midway through the year and put its budget planning at risk. And deputies should respect certain principles of government at all times. It is not as if the economy would not survive an increase in fuel and electricity prices.
It is also a matter of political order. The government’s fiscal policy for 2018 was approved by the legislature and is not subject to chopping and changing at the whim of a deputy wanting to pander to the public. In a perverse way, the absurd demand for a ceiling price by the Akel union federation Peo makes more sense than Votsis’ proposal to cut the excise tax. At least that would not affect the government’s fiscal policy, if it could be implemented. The last time this was attempted, under the Christofias government, it proved to be a fiasco, as the oil companies refused to play ball and the ceiling was quickly abandoned.
Everyone is affected by higher fuel prices but it is not the responsibility of the state to lower taxes whenever the world price of oil goes up. Given the big number of powerful petrol-guzzling cars on our roads drivers are obviously not too bothered about having a high weekly petrol bill and there is no economic justification for protecting them when prices go up. The pockets of people with small economical cars are much less affected by the price rises and so it should be.