This year’s debate on the 2021 Budget took place in an unprecedented context not only because the pandemic created new conditions in the economy, but also because the economic problems brought to the surface by the hurried abolition of the Cyprus Investment for citizenship Program after our country has been discredited all over the world, having in mind the problems and weaknesses of Cyprus’ developmental model, created the need for a change in the philosophy of the economic policy pursued by the government up till now. The combating of the economic problems that existed before the pandemic, such as the issue of foreclosures, the growing income inequality and the absence of a comprehensive social policy, particularly in the housing sector, has become even more pressing.
Instead of providing solutions to these problems, the government sought to reaffirm its existing policies, by calling for a blank check to secure consent for the approval of its budget using the pandemic as an excuse – without showing in any way that it understands the urgency of the times, without demonstrating a willingness to engage in a consultation, rejecting every demand put forth by the opposition and especially without being in a position to plan for the day after. It is characteristic that at a time when one EU country after the other locked down its economy and in Cyprus the pandemic was spreading in the worst possible way, the government had drawn up the Budget predicting that the Cypriot economy would register unprecedented growth in 2021 and it wasn’t in a position to present even a plan B.
The government never took into account the messages which the rejection of the budget conveyed, different from each party but significant in every way, despite the statements to the contrary the day after the vote. Worse still, it sought to use the vote on the 2021 state budget as an alibi for its inability to address the economy’s accumulated problems.
And when the government found itself before the need to secure a broader consensus (for the budget’s approval), it chose to resort to arguments based on scaremongering and fear. It chose, instead of confronting fundamental problems in the economy, to enter into a procedure of petty-political consultations aiming at securing a parliamentary majority for the approval of its Budget, eventually securing the support of sworn friends.
One would have expected that the pandemic and the new conditions would be a starting point for developing a new way of thinking. This hasn’t happened and the government has no intention of doing so.
In fact, on a number of issues lately, the government seems incapable of handling the situation. On tourism, it has failed to achieve the goals it itself set. Its estimates for a 40% tourist influx compared to 2019 levels remained mere estimates. Public investments, which have been so important during this period, have remained an empty slogan, given that developmental budgets, especially in recent years, are approved but not implemented. On issues relating to private debt and the banks the government remains faithful to protecting the banks. The government’s ESTIA scheme supposedly for debt relief has failed, leaving society exposed and its announcement for a new ESTIA 2 scheme confirms the magnitude of the failure of the first venture. Its strategy to deal with Non Performing Loan’s limits itself to the sale of loans by the banks to investment funds without providing any answers as to how borrowers will be supported. Regarding taxation and tax evasion, the EU is now ringing alarm bells about Cyprus’ tax model and the need to change its character.
Therefore, the government may pretend that it now has a budget that has been approved, but it does not seem to have any orientation for the day after. And most importantly, it no longer has even an alibi.
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Article by Haris Polycarpou, Head of the Economic Studies Bureau of the C.C. of AKEL