Households in Cyprus will receive substantial support from the increase of the tax-free income to €22,000, as well as from the deductions based on annual family income and family composition, under the agreement reached between the government and DISY, DIKO and DIPA, which is also supported by EDEK, six months before the parliamentary elections.
According to data provided to Politis by economist Tasos Yasemidis, raising the tax-free threshold to €22,000 from the current €19,500 means that for a €30,000 annual family income (no children), the benefit will be €500; with two children, it increases to €900; with three children, to €1,100; and with four children, to €1,700.
If the annual family income is €60,000, the increase of the tax-free threshold to €22,000 results in a benefit of €985; with two children, the benefit rises to €1,585; with three children, to €1,885; and with four children, to €2,785.
For an annual family income of €100,000, the benefit for a family with four children reaches €3,685.
The fiscal cost of increasing the tax-free threshold to €22,000 amounts to approximately €85–€90 million.
Lost revenue so far
It is noted that, so far, the Ministry of Finance has officially announced lost tax revenues that will arise without additional income to offset the losses. This may imply the imposition of further taxation, or possibly that the state’s public finances can absorb the impact, as both Makis Keravnos and the parties that reached agreement with him have suggested.
New meeting today
Regarding legislative work, the Parliamentary Finance Committee, which met yesterday behind closed doors, is expected to reconvene today to continue discussing the tax reform bills.
The chair of the Finance Committee, DIKO MP Christiana Erotokritou, commenting on criticism from parties that were not invited to the meeting with the Minister of Finance, stated that “political parties which either participate in or support a government have both the right and the obligation to engage with the executive, to ensure an honest exchange of views so that surprises in economic matters are avoided and so that no government faces sudden shocks, as these phenomena are particularly damaging to the economic climate.”
“For DIKO,” she noted, “the reintroduction of memoranda-era taxes is not an option. We want the Cypriot economy to remain competitive so that growth rates increase. This will generate more revenue and give any government the ability to support low- and middle-income groups.”
On wealth taxation, she added that such taxes “always backfire and undermine growth potential and the country’s competitiveness.”
Regarding the timeline, she said meetings will continue today, and possibly also on Friday and Saturday. “Whatever time frame we are given, we will exhaust it,” she said.
DISY MP Onoufrios Koullas said that “with the amendments we will table together with other political forces, we achieve all the goals we set for the tax reform.”
“According to our assessments, the amendments fall within the safe fiscal margin,” he said, adding that through DISY’s interventions in the Finance Committee “we clarify provisions to avoid misunderstandings and disputes, strengthening the business environment.”
Referring to the fiscal cost of €110 million arising from the amendments, Mr Koullas noted that there is fiscal space. “There is a significant surplus, there is a strong economy currently in a growth phase,” he said, noting that part of the cost will be covered from other sources and from improved tax compliance. He added that, according to DISY’s estimates—which the Ministry of Finance did not dispute—around €35 million will return to the state through consumption taxes.
DIPA MP Alekos Tryfonides said he is particularly satisfied to see that his party’s proposals for the tax reform are being accepted by other political forces and that the necessary convergences exist “to help achieve a fairer allocation of the tax burden.”
Reactions over exclusion
Meanwhile, reactions continue from parties that, for reasons not explained, were not invited to Tuesday’s meeting at the Ministry of Finance.
AKEL MP Aristos Damianou stated that “while AKEL is fighting within Parliament for a fairer tax reform benefiting the many, DISY and DIKO are holding backroom meetings at the Ministry of Finance aimed at preventing the wealth taxation we propose.”
AKEL is advocating, among other things, he noted, for the taxation of banks’ windfall profits, taxation of immovable property worth €3 million and above, an increase of the tax-free threshold to €22,500, preventing taxation of Provident Funds, reducing VAT on electricity from 19% to 5%, and raising the limits and deductions for families.
“AKEL will persist with proposals that are not part of the DISY–DIKO agreement with the Minister of Finance,” he stressed.
The president of the Green Party, Stavros Papadouris, noted that several issues in the reform remain unclear. Regarding Tuesday’s meeting, he said that parties have the right to meet with whomever they want, but not to speak of an agreement with the ministry when the Committee is still discussing the same documents it already had before it, without any changes being presented.
Responding to criticism that the convergence between DISY and the governing parties did not happen publicly or institutionally within the Committee, Mr Koullas said: “We meet where we want. It is the right of political parties to gather wherever they choose.”
This article was originally published in the Politis daily newspaper.