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Our View: Support measures generated a lot of noise about very little

President Nikos Christodoulides personally announced, in a televised speech, the seven measures that will help people deal with the high cost of living. The measures probably did not merit a presidential announcement as those affecting the overwhelming majority of the population were already in existence and extended by one to three months. Nevertheless, the president cannot be blamed for wanting to be a messenger of good news and take personal credit for the support measures, which will cost in the region of €60m.

This is significantly lower than the support measures announced last October, which totalled €196m, but an indication that Christodoulides has not deviated from what he describes as the government’s “responsible fiscal policy”.

The latest measures were more of a publicity exercise and will make very little difference to living standards, considering that most measures that affect the whole population – zero VAT on basic products, lower fuel tax, and subsidy of electricity rates – were already in place and have been extended.

A good example of the marginal benefit is the so-called “scaled subsidy of electricity”, which in effect is a subsidy on the fuel cost. The subsidy scale goes down as consumption increases going to zero when consumption exceeds 800 kilowatt hours in the two-month billing period. When the price of crude oil was at its peak in 2022, the subsidy translated into a reduction of up to 60 to 70 euros for use of 800kWh. With the price of crude oil down by 20 per cent the discount for the same consumption will be about €15.

This is a negligible saving for a household’s costs – €7 per month – and the government should have taken the opportunity to scrap the subsidy. If the price of crude oil rose to above $100 per barrel again, the government could have reintroduced the measure, instead of wasting funds on extending the subsidy at a time when it is not needed. The same is also true regarding the extension of the reduced fuel tax until the end of March. This is not justified in current conditions, but it would appear the government is more concerned with winning kudos from the public than taking rational economic decisions. The government’s measures targeted at vulnerable groups consist of one-off payments, which would not put a strain on public finances. Housing loan subsidies were also announced by Christodoulides, primarily for people with refugee IDs.

In reality the so-called support measures generated a lot of noise about very little. The government’s overriding concern appears to be the generating of positive publicity at a time when things have not been going very well for it – recent opinion polls showed very low approval ratings for the president, as he approaches his first anniversary in office. On the plus side, Christodoulides has not spent money recklessly in order to improve his government’s standing.

 

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