Now is not the time to roll out a carbon tax, as the country’s tax base is already reeling from the rising cost of living, the finance minister said on Tuesday.
In remarks at the Economist conference, Constantinos Petrides stated the government will not impose a ‘green tax’ at the end of the year, as previously planned.
The minister spoke of tough times for the global economy, as a result of the Covid pandemic and the ongoing conflict in Ukraine. Inflation is the single greatest challenge facing the EU at the moment, he said.
According to the minister, four factors have led to the current inflationary spiral – expansionary monetary policies with zero or negative interest rates; the coronavirus pandemic where governments had to tap into reserves to prop up salaries and support businesses; the fallout of the war in Ukraine and the sanctions imposed on Russia; and the ‘green transition’.
Petrides forecast that energy prices will remain high, adding that the European Union is leaving behind an era of prosperity built on cheap energy.
The finance minister stressed the importance of keeping public finances on an even keel, given increased government spending on supporting vulnerable groups – particularly due to the coronavirus pandemic as well as the energy and fuel subsidies green-lit recently.
“To wean ourselves off fossil fuels, we will need tremendous investments in green energy and the green transition,” he noted.
“If we act piecemeal, we will be punished,” Petrides added, citing as an example to avoid the “populist” policies adopted in other countries, such as the United Kingdom, and which elicited “an extreme reaction from the markets.”
The finance minister underlined that government spending must always be viable.
Referring to the 6 per cent economic growth registered during the first half of the year, Petrides said this was no fluke, but rather the result of careful planning.
Major steps were taken in shipping, while Cyprus has become a hub for IT and high-technology corporations.
In December of 2021, prior to submitting the state budget for fiscal year 2022, Petrides had announced a tax reform drive, which would include a carbon tax as well as the introduction of environmental taxes to achieve environmental objectives.
“It is a green budget since in the next three years it envisages expenditures of €717 million for green development that will contribute substantially to the resilience of the Cypriot economy through the green transition and the independence of the economy from fluctuations in international fossil fuel prices,” he said at the time.