Our View: Sugarcoating unpopular policies cannot work indefinitely

There are some government decisions on which it is impossible to put a positive spin and maintain credibility. The Christodoulides government does not appear to have realised this yet, which would explain why Finance Minister Makis Keravnos has been claiming “the benefits” from green taxation plans “will be huge”. How more expensive fuel, more expensive water and costly, mandatory energy upgrading of houses and offices would hugely benefit the average household and businesses, nobody knows, but this has been the minister’s message.

For example, at the end of this month, the 8.3 cents reduction of the consumer tax on a litre of fuel comes to an end, while from April 1 the government also hopes to introduce a 5 cents green tax. The political parties will probably delay its introduction, but there is a possibility that from next month the price per litre of petrol would increase by 14 to 15 cents, not exactly a huge benefit for consumers’ pockets, although, as Keravnos said, green taxation would “discourage waste of energy and natural resources”. How many people see this as a benefit is another matter.

He also claimed the carbon tax on fuel would be “imperceptible” and that there would be measures to offset the taxation – all revenue from the carbon tax would be returned to businesses and households in different ways which had not yet been decided. Even this is a disingenuous claim, as nobody will be reimbursed for the higher bills they have to pay. There may be some targeted, support measures for vulnerable households but for the rest of the population the higher cost of living is a given.

There is another aspect to the green taxation which the government appears to be ignoring – the inflationary pressure it will cause. Higher fuel costs are certain to push up prices as businesses will pass on the higher costs to the consumer, just when it seemed like the rate of inflation had been brought under control. People could be faced with another bout of rising prices as a result of green taxation and the government will be faced with protests and more demands for action.

There is a suspicion that the energy regulator Cera’s decision to reject the Electricity Authority’s proposal for an increase to its tariff by just under 6 per cent was at the behest of the government, concerned that this would spark a strong public reaction, especially as its subsidy of electricity bills is set to end at the end of April and is unlikely to be extended. But even the ending of the subsidy will spark complaints.

Tampering with taxes, as a temporary relief measure for people is not a good idea as it creates the impression that it is a viable policy option. Political parties are already talking about extending the tax cut on fuel and come April they will probably seek an extension for the electricity subsidy and what will the government do then? Will it give in, regardless of the risk to public finances, or will it stand firm?

Positive spins and sugarcoating unpopular policies cannot work indefinitely, because, at some point people will be affected by reality. Keravnos is undermining his credibility and that of the government by talking about the huge benefits of green taxes and pretending they will not financially hurt people, because of offsets. Was it so difficult for him to acknowledge that everyone would be burdened with the cost of the green transition which is part of our commitments as an EU member-state?

This type of straight-talking unfortunately is not the style of the government. It is now under pressure to extend the fuel tax discount and subsidy of electricity bills because it has bowed to pressure for keeping them, rather than make it clear that these were temporary measures that could no longer be justified – the international price of oil has fallen significantly – and that we have to cope with inflation. It did not do this, which would have been the responsible line to take, instead of creating the mistaken impression that inflation could be tackled by cutting consumption taxes and subsidising utility bills. Now the parties expect it to keep these measures, which increase inflation and affect public finances in place indefinitely.

The government needs to understand that there are times it has to say things as they are, for the good of the country.