‘Summer the worst time’ to scrap energy help

Disy and Akel MPs reacted on Thursday to the scrapping of relief measures for fuel and electricity, arguing that the summer months were the worst possible time to end the subsidies on electricity bills.

However, Energy Minister George Papanastasiou has said that keeping the subsidy was “not justified in any way” after the cost of fuel decreased.

He added that continuing the subsidy would mean a “serious burden” on the government’s budget, and added that it was not an easy decision to remove the subsidy.

The cabinet on Wednesday decided that fuel subsidies will be fully discontinued while electricity bill subsidies will carry on albeit significantly more targeted towards highly vulnerable groups. The reformed measure will cost the state €2.5 million and will last until the end of September.

Speaking to CyBC radio on Thursday morning, Finance Minister Makis Keravnos clarified that vulnerable groups include those receiving guaranteed minimum income, the unemployed, and single parents in receipt of welfare.

Those with large families, the disabled, those who receive disability pensions and famers using water pumps are also included.

The total number of families who stand to benefit from the relief measure comes to 36,000, of whom, to date, about half have applied for it, Keravnos said.

Disy MP, Harris Georgiades, and Akel’s George Loukaides, speaking on the same programme, took the position that the summer months were the worst possible time to abolish the relief measure for electricity.

The measure should–and could–have been extended through the summer, Georgiades said, since the EU Commission also provided suggestions for relief measures to be kept in place until the end of the year.

“The ending of measures was intended to be done smoothly,” Georgiades said, adding that in contrast with other member states, Cyprus has high energy requirements in the summer, therefore a three-month extension of electricity subsidies was fully justifiable.

Asked to respond to the argument for fiscal responsibility put forth by the finance minister and supporters of the scrapping of measures, the Disy MP retorted that the current government had introduced long term and ongoing costs into the state budget, including 2,000 new hires, CoLA and “other smaller costs left and right”.

These were of dubious fiscal responsibility, the MP suggested, while instead the state did away with relief measures which were temporarily and urgently required by, among others, the small and medium business owners.

Their abandonment was premature, Georgiades said, and they would have had a greater overall positive impact for the general public than other supports.

Loukaides agreed and emphasised that the average person is at the moment faced with a “tsunami of high costs”.

“The government has never claimed that we have seen the end of the high costs,” the Akel MP said, adding that while rents and general prices of all items have shot up, the state coffers are being filled with revenues from higher taxation on these items.

Loukaides said that the touted zero VAT measure on common household goods had had nil effect, and if anything raised the spectre of the higher prices becoming an embedded feature.

The increase in mortgage interest rates is also adding to the ‘tsunami’ Loukaides said, citing as an example, the fact that families paying €700/month are now expected to pay €1200.

A comprehensive relief plan is in order the Akel MP said, as, while average households are being squeezed, banks are profiteering and engaging in abusive practices. The government has tools to reign in the banks and can also exert influence on credit companies, Loukaides said.

Diko MP, Christiana Erotokritou, chimed in with the position that something needs to be done to see people through the summer months, saying that a “broadening of measures decided on” must be sought.

Everything possible must be done to mitigate energy poverty of citizens, she said, claiming that the needs of Cypriots for cooling in the summer exceed the needs of central Europeans for heating in the winter.

The downstream effects of doing away with the subsidies must be taken into consideration, the Diko MP added, as unaffordable electricity costs will impact not only households but small to medium businesses.

Finance Minister, Makis Keravnos, responding to the criticism and concerns expressed, reiterated his government’s commitment to fiscal responsibility and brushed aside suggestions by the MPs that the state finances were less-than-robust and that there had been a lack of transparency and clear public accounting.

For the balance sheet to work out, it is clear that targeted not horizontal measures must be in place, the minister insisted, noting that this was also the direction signalled by the EU in meetings of the economic and financial affairs council (ECOFIN) and the Eurogroup.

“We cannot allow relief measures to become established,” the minister said, because they are feeding inflation.

The subsidisation of fuel had cost the state €33 million/bi-monthly; the electricity subsidy €21m/bi-monthly; and the zero VAT measure on essential items – which has been extended to cover the summer – cost €3.5m, the minister said, while financing of CoLA will cost around €98m/year.

“The measures are under constant review and should circumstances warrant their reintroduction, this can be done,” the minister concluded.