The focus on property development and consumerism favour the elite at the expense of the environment and ordinary citizens
The ongoing performance and policies of the government of the Republic of Cyprus headed by President Anastasiades indicates that it does not really care about meeting the socio-economic needs of ordinary Cyprus citizens and in protecting the natural environment.
More broadly, all the government administration seems to care about is whether the allocation of resources is helping to increase the power and wealth of the political and business “elite”, while keeping public sector employees satisfied with relatively good salaries and benefits. Little official concern is given to the incomes and working conditions of private sector employees, especially currently in the face of mounting cost of living pressures.
Furthermore, any efforts to reduce income and wealth inequalities and give adequate assistance to the vulnerable members of society are limited by a great reluctance to substantially raise and collect taxes from high-income earners, property owners and extremely profitable companies. And in blatantly favouring certain segments of the population, the Anastasiades government does not appear to care about its weak and deteriorating institutional performance in enforcing laws and regulations, in rendering high-quality services including in providing social protection, and as well in implementing productive and environmentally friendly investments.
Even after the setbacks of the 2012/13 financial crisis the implicit economic model of the government continues to promote debt-fuelled property development and consumerism supported by mass tourism and the use of Public-Private Partnerships (PPPs) for major infrastructure projects.
Investments
As a result of favourable tax incentives and turning a blind eye to tax evasion, and banks treating highly indebted large companies and hoteliers generously, property development has been strongly spurred on. Furthermore, the unsavoury implementation of the controversial golden passport scheme stimulated the construction of “luxury” apartments and villas directed at attracting foreign demand, greatly enriching many lawyers, accountants, bankers, real estate agents and politicians in the process.
Furthermore, the central government and local authorities in favouring the building of towering apartments and hotels in crowded coastal areas by neglecting and/changing environmental regulations and stealthily pressing for the construction of property in Natura 2000 areas like Akamas has showed contempt in protecting the natural environment.
The arrangement and implementation of major infrastructure projects under PPLs in Cyprus has not necessarily involved the best use of tax payers’ money and in some cases has caused environmental damage. A number of PPP agreements on projects such as the Limassol port, desalination units and waste disposal plants have been arrived at without an independent financial and economic appraisal. In effect, by government bureaucrats giving generous concessions to private sector partners and passing risks onto the public sector, monopolies and cartels have been created, that in turn thrive on taxpayers’ money. Hence, resources that could otherwise be spent on meeting healthcare, education and other social needs are extracted by these publicly created monopolies.
Furthermore, the implementation and operation of certain projects which are supposed to dispose of waste and reduce pollution have often produced the opposite result as the recent burning of discarded tyres at two waste disposal plants has clearly demonstrated. But the government does not seem to care and along with other environmental violations is failing to punish the culprits. Meanwhile ordinary taxpayers are penalised with the payment of fines to the European Union for such transgressions.
Consumerism
Private consumption reflecting the promotion of consumerism is the main source of GDP growth in Cyprus and contributes to raising the economic welfare of most citizens. However, empirical findings indicate that endless consumption does not make people happier, despite having all the things they need. And it is argued that consumerism erodes the moral fabric of society with the value of persons being judged by how much they own. Furthermore, consumerism with its propulsive power of envy and need to boost self-valuation can lead to excessive and unaffordable indebtedness that in turn causes socio-economic problems as the recent experience of Cyprus sadly demonstrates.
The biggest drawback of endless consumption is the growing ecological footprint, which is increasingly harming the environment. Put simply, more consumer demand leads to more production, greater energy use and more carbon emissions. And even with the move to green energy sources scarce natural resources like water, unpolluted soil and minerals such as cobalt and nickel used in batteries face depletion with overconsumption.
Weak institutional performance
In broad terms, key problems such as the lack of economically viable investments outside of the property and tourist sectors, the excessive debt fuelled investments in segments of the real estate sector, and the biased arrangement of PPP project agreements as well as the negative social and environmental externalities associated with over-dependence on property investments and consumerism reflect not only the implicit economic model pursued by the Cyprus government, but also deficient public governance and institutional competence, that in turn can be attributed to the uncaring policies and attitude of the Anastasiades administration.
Most importantly, the Cyprus authorities have failed in effectively implementing and enforcing laws and regulations that has led to a biased and often unproductive allocation of resources in favour of the political and business “elite” at the expense of most Cyprus citizens. A glaring example is the failure of government institutions and the Central Bank of Cyprus to combat tax evasion and the illicit flow of money through banks in the purchasing of Cyprus property and passports under the controversial golden passport scheme. Accordingly, it goes without saying that government institutions should be required to strictly enforce existing laws and regulations and violators made accountable and penalised.
But government officials complain that in some situations, certain institutions do not have the capacity to effectively enforce existing regulations and laws. It is reported that the Ministry of Agriculture, Resources and the Environment does not have sufficient staff to enforce the vast array of environmental regulations agreed with the EU. And the judicial authorities argue that the system for issuing charges and arriving at court judgements on individuals and business entities is so inefficient that accessing the legal system to render justice is much discouraged.
Tax Commissioners state, somewhat disingenuously, that the tax system and its administration are not sufficiently digitised and do not have enough competent tax administrators to collect an adequate amount of tax revenue from high income earners and wealthy property owners through, among other things, effectively combatting widespread tax evasion.
But to date the government is doing little to raise institutional capacity by employing a greater number of competent personnel and advancing significantly digitisation in public sector institutions. The government apparently doesn’t care and over recent years has boosted increasingly the number of casual, albeit often incompetent, workers on its payroll, while decreasing its number of permanent workers, undoubtedly mainly for political reasons.
Need for new institutions
Cyprus’ recovery and resilience plan, which aims primarily at transiting to a greener and more digitised economy, comprising 75 investment projects and 58 reforms, provides a good opportunity to address environmental problems and improve institutional capacity. However, to effectively implement these large multitude of investments and reforms using EU funds will require, among other things, new and reformed institutions.
Most importantly, a professionally staffed and totally independent financing institution is required not only to ensure that funds are directed toward economically viable projects, but to ensure also that PPP projects are agreed keeping the public interest in mind. Thus, it is recommended that a Development Finance Agency be established tasked with evaluating, preparing and arranging the financing of large-scale investment projects employing staff with competence in project appraisal and financing.
In addition, reform of the Tenders Review Authority is needed to streamline and expedite inefficient procedures that cause lengthy delays in the award and execution of promising EU-funded public investment projects.
Reducing overconsumption
The Anastasiades government does not seem to be sufficiently concerned about the negative social and environmental consequences arising from consumerism and over-consumption. There is a need to educate citizens about and raise taxes on consumer items such as cigarettes, alcoholic drinks and sugar-intensive foods and beverages that cause health problems. Obesity of Cyprus children is the highest in Europe and surely is attributable to their excessive consumption of certain food and drink items. And consumers need to be educated as well about how to avoid becoming excessively burdened with debt through the financing of consumption.
Obviously, less consumption and related lower production results in a decreased ecological footprint with proponents of “degrowth” arguing that that the endless growth of consumption is on a collision course with a finite planet. Accordingly, energy-saving techniques are called for in the production of consumer products and in the consumption of energy by households. Other recommended measures include persons shifting from use of private vehicles to public transportation, greater use of food waste, and reductions in the planned and psychological obsolescence of products.
Les Manison is a former senior economist at the International Monetary Fund, an ex-advisor in the Cyprus finance ministry and a former senior advisor at the Central Bank of Cyprus
