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Our View: Government can ill afford state support for small businesses

In the end the government was obliged to satisfy the demand of Diko for direct state support to small businesses, in order to secure the votes it would need to have its bill for state guaranteed bank loans approved by the legislature. The bill had been tabled in the House in March and aimed at improving the liquidity of businesses during the lockdown through bank loans totalling about €2 billion, but it was not put to the vote because of the three big parties only Disy supported it.

The populists of Diko and Akel wanted the state to borrow the money from the banks and then distribute it among the stricken businesses, which apart from being a recipe for corruption, would have increased the public debt that was already too high at close to 100 per cent of GDP. These shamefully irresponsible parties knew their proposal would be much more popular because the recipients would not be pressured by the state to repay the loans which would amount to a state grant.

The government had to give something to secure the necessary votes, so it came up with the proposal of allocating €300 million in direct state assistance to very small businesses that reportedly won over the charity-minded Diko. The council of ministers’ meeting on Thursday is expected to take the decision for the direct assistance, which is money the government can ill afford to give away but will win brownie points for Diko.

This is how our political system works. Opposition parties hold the government to ransom and can dictate their terms in exchanges for their votes on an important bill. A costly decision will be taken that is at odds with government policy and fiscal planning, for no other reason than that Diko wants to pander to owners of small businesses. It is certainly not a rational way to run a country, but the government has no choice considering that the alternative is no bank loans being made available to assist businesses in difficult times.

Having given in on the state grants, the government will be praying that before the legislature’s vote Diko does not embrace the other Akel demand for subsidising business rents. Anything is possible in the wheeler-dealing of Cyprus politics in which unaccountable opposition parties have the power to dictate to the executive how it should spend the taxpayer’s money. Perhaps the government should also play dirty and once the bill for the state guaranteed loans is approved it can shelve the idea of direct grants to businesses.






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