Petrides rejects more VAT cuts

Finance Minister Constantinos Petrides on Monday stood his ground amid a barrage of criticism from opposition parties accusing the government of not doing enough to provide relief to people hit by soaring prices.

Attending the House finance committee, Petrides expressed strong objections to three bills tabled by opposition parties, proposing across-the-board cuts to VAT on electricity, fuel and medicines.

He argued that, overall, the parties’ proposals would cost the state some €300 million in lost tax revenue – causing problems for state’s finances. Given that the proposed measures were not targeted, they would end up disproportionately benefiting the wealthy.

Instead, the government could better direct resources to provide relief in a targeted way, helping those who need it the most, Petrides said.

For example, the bill tabled by Dipa provided for zero VAT on food items and medicines for a period of six months, and slashing to 5 per cent the VAT on electricity and restaurant services. Akel’s proposal would see zero VAT levied on fuel.

Countering, Petrides said that concerning electricity, in Cyprus taxes and the grid operating costs account for 49 per cent of the final price on the bills, compared to 63.1 per cent in the rest of the eurozone. He also recalled that the government had already cut VAT on electricity from 19 per cent cent, to 9 and 5 per cent for vulnerable groups.

Any further tax cuts would act as an incentive to consume more electricity – contradicting the goals set by the EU for the green transition, he said. Most of the electricity generated in Cyprus is from conventional fossil fuels.

Petrides also noted that the government had already adopted two packages of measures aimed at softening the impact from the war in Ukraine, costed at about €300 million.

However, by the end of a tense discussion, the minister said he was open to considering some of the parties’ proposals.

After the meet, Diko deputy Christiana Erotokritou panned the minister’s argument that the parties’ suggestions – particularly on cutting taxes on electricity consumption – would in fact increase inflationary pressures.

She wondered how, by the same rationale, the government did not consider as inflationary its own reduction of VAT from 19 to 9 per cent.

“Our position is that we need to help consumers, especially vulnerable groups. We will try to continue our dialogue with the finance ministry because we are confident that where there is a will, there is a way,” said Erotokritou.

Akel’s Aristos Damianou likewise rubbished the minister’s argument that cutting taxes would boost people’s purchasing power and thus lead to more spending, increasing inflationary pressures.

“If the minister,” he noted, “thinks that poverty among the low and middle-income groups will keep inflation in check, that puts paid to the government’s slogan about the able helmsman.”

For his part, Elam MP Soteris Ioannou lambasted the government for its “spending spree” on asylum seekers while disregarding Cypriots.