The Council of Ministers on Thursday decided to cut the VAT charged on the electricity bills of ‘vulnerable households’ from 19 to 5 per cent. It was a measure deemed necessary to help out low-income family after electricity rates increased by about 40 per cent a few weeks ago as a result of the rise in the price of crude oil.
This followed a government decision to offer a 10 per cent discount on the electricity bills of all households to help them cope with the soaring electricity prices. The discount, which is in place for four months and will total about €50 million, is funded by the EAC’s reserves. Now, the government has decided to take a small hit by cutting VAT for vulnerable households.
What constitutes a ‘vulnerable household’ that politicians make a habit of referring to is unclear, nor have we ever been told how many are in this category. Do half the households of Cyprus claim to be vulnerable in order to be eligible to the discounted VAT? What are the criteria for a household being eligible? Does the householder have to be a recipient of the ‘minimum guaranteed income’, be unemployed or be on social benefits?
The bizarre thing is that the EAC will now be responsible for implementing this nebulous social policy which should be a responsibility of the state. The EAC has neither the expertise nor the legal power to means-test its customers in order to decide whether they are vulnerable and therefore eligible for the VAT discount. Perhaps the government will issue certificates that would have to be presented to the EAC.
It is difficult not to describe the measure as a populist stunt aimed at silencing the government’s critics who have been banging on about the rising prices which are adversely affecting living standards, particularly of low-income earners. Political parties, led by Akel, have been attacking the government for not having a policy for dealing with the rising prices, as if there is some obvious remedy, like the waving of a magic wand that keeps prices constant.
The government needs to ignore the populists and resist the temptation of implementing superficial piecemeal measures for the sole purpose of neutralising the bad publicity. It should be honest, informing people that in an open economy, prices cannot be controlled, instead of creating the false impression that the government can take measures to protect some people from higher prices. Will it also force bakeries to sell bread below cost price now that grain prices have risen?