THE MEASURES TO TACKLE THE CRISIS IN EUROPE AND CYPRUS
One after the other European governments in their attempts to tackle the economic crisis and huge deficits and debts are taking harsh austerity measures which include cuts in wages, social benefits, pensions and other benefits of working people. The reaction everywhere has been fierce and millions of working people, the only ones not to blame for the crisis, are taking to the streets demanding the equal distribution of the burdens and the imposition of taxes on the banks and wealth.
The economic crisis that has hit Europe over the last 2 and a half years is expressed through the dramatic fall in the growth rate (-4.2% in 2009), the great increase in unemployment (10% of the labour force) and huge public deficits and debts.
The public deficit and public debt are two of the Maastricht criteria, which must be not be exceeded: the former 3% of the GDP and the latter 60% of the GDP.
According to statistics released by EUROSTAT, most countries in the European Union have already exceeded these levels.
The following table is quite informative:
PUBLIC DEFICIT AND PUBLIC DEBT IN EU COUNTRIES (% OF GDP)
Therefore the countries with an excessive deficit, whether through the recommendations of the International Monetary Fund (IMF) so that they can be given a loan, or because they are under supervision and must within a specific period of time reduce the deficits and debts, are forcing through harsh austerity measures which mainly afflict working people and the weaker vulnerable strata of the population.
Let us see the measures various countries are taking to tackle the deficits:
- - Increase in VAT for the πολύ χαμηλο συντελεστη from 4.5% to 5% for the χαμηλο from 9% to 10% and from 19% to 21% for the υψηλο.
- - Increase of the special consumer taxes on fuel on πετρελαιο κινησης, cigarettes and alcohol.
- - Cut of Christmas, Easter bonus (δωρο) and holiday benefit by 30% for civil servants. Cuts of civil servants benefits by 12%.
- - Freezing of pensions.
- - Increase in taxes on the real estate of offshore companies.
- - Imposition of a special tax on luxury items.
- - Relaxation of the legislation regarding dismissals.
Reduction of wages in the public sector by 5%, freezing of wages and pensions for next year and the abolition of a benefit of up to 2,500 Euros granted to families on the birth of their first child. Reduction in the scheduled public investments by 6 billion Euros, cuts in the funding towards local and regional governments by 1.2 billion Euros. Reduction of Ministers wages by 15%. The aim of the austerity measures is savings that will contribute to the reduction of the deficit in 2011 to 6% from the 11.2% that it was in 2009.
Freezing of civil servants wages for four years (2010-2013) and cuts in the wages of high-income earners in the public sector. Increase in VAT by one unit μοναδα (that will rise to 6%, 13% and 21%). Reduction in unemployment benefits and the abolition of the minimum wage standing at 475 Euros. Increase by 2.5% in the taxation of large companies and the suspension of big investment schemes of up to 1.2 billion Euros. Furthermore, attempts are being made to increase the retirement age from 65 to 67 years.
Freezing of wages of civil servants for 3 years, freezing of hiring of employees in the public sector, gradual reduction of up to 10% for high-income earning civil servant employees. Delay from 3-6 months for all those retiring in 2011. Reduction by 10% in the expenditure of Ministries in 2011 and 2012 and cuts of 13 billion Euros in the funding of regional governments. Cuts in the Health and Education sector. With these measures the Berlusconi government hopes to save 25 billion Euros.
The new conservative and liberal government presented one of the most severe budgets, including the freezing of wages in the public sector for the next two years, increasing however by 250 pounds the wages of low income earners, VAT increase from 17.5% to 20% as from January 2011, increase in indirect taxes on drinks and cigarettes. From the beginning of next year a tax will be imposed on the turnover of banks operating in Britain. Reduction of taxes on companies profits from 28% to 24% and increase in the tax-free amount for wage earners by 1,000 pounds (it will reach 7,474 pounds).
With these measures the government has set as its goal, the reduction of the deficit from 10.1% to 1.1.% of the GDP in the five year term.
Freezing of state expenditure in line with inflation for the tree year term 2011-2013, excluding pensions. 360 billion Euros have already been given to the financial sector. Reform of the pension system which provides for the increase in the retirement age from 60 to 62 years.
The first package to tackle the crisis and to bail out the banks amounted to 30 billion Euros.
The sum of 17.3 billion Euros followed for public investments and the modernization of infrastructures (schools, nurseries, transport), 10 billion for investments in Municipalities.
Other measures: extension of the duration of the unemployment benefit from 12 to 18 months. Increase in the tax-free sum by 170 Euros (rising to 7,837 Euros). Reduction of working peoples and employers contribution to the health system and increase in the contribution of the government. Incentives for a small duration of work, whilst the state will play for the social insurance. A sum of 100 billion Euros will be spent for training in the large companies.
Reduction from 4 to 2 years in the duration for the provision of unemployment benefit, cuts in sick benefits, child and student benefits. Cuts in the fields of research and culture. Freezing of the assistance rendered to third countries, postponement of the measure to reduce taxes on high incomes and a reduction in Ministers wages by 5%.
Reduction in civil servants wages starting from 5%, cuts child benefits.
The country that has agreed to a loan from the IMF will reduce wages in the public sector by 25%, whilst unemployment and pension benefits will be cut by 15% and 137,000 civil servants will be dismissed.
This country has also accepted help from the IMF. The austerity programme, inter alia, includes dismissals of civil servants, cuts in expenditure, health and medical care, whilst the number of its members of Parliament has been reduced by half.
The IMF has also imposed on this country severe austerity measures which, inter alia, include increasing VAT to 21%, cuts in expenditure for health by 40% and a 20% reduction in wages.
The reactions of working people to these vivious austerity measures are fierce. Following the Greek working people, the Spanish, Portuguese, Italian and Rumanian workers have also taken to the streets, whilst the wave of mobilizations is expected to affect the majority of the EU countries.
In contrast to most European countries the measures the Government has proposed can be characterized as mild, balanced and distribute the burden and consequences of the crisis equally. However, this government is under fierce attack by almost all the political forces, an attack characterized by demagogy, populism and a wild negative criticism.
Let us look at where this full-frontal attack is focused on recently.
- The government has sent to Parliament a bill for the temporary increase by 1% (from 10% to 11%) in Corporate Tax so that the large companies making profits will also contribute to the tackling of the crisis.
Parties, Organizations, Associations and economic figures have expressed their fierce opposition to this bill because they claim this would damage entrepreneurship whilst foreign companies will leave Cyprus and that the government is suffering from ‘ideological fixations’.
Indeed for the first time we also had a meeting of all employers associations aiming at coordinating their actions against the specific measure.
First of all, we must note that this measure by the government was promoted based on the proposal of all the trade union organizations when they met with the President of the Republic.
In essence, this small increase in no way does it affect companies or the banks that are making big profits. A company that has made 1 million Euros profit will pay an additional 10,000 Euros!
That is to say that it will pay 11,000 Euros in tax. This sum is reduced when deducing various expenses of the company, such as donations, hospitality expenses, cars etc. The claim therefore that the increase in the corporate tax will affect investments and employment are to say the least comical.
No foreign company will leave Cyprus because corporate tax in Cyprus remains the lowest in the Euro zone. If one studies the facts one can ascertain that this tax fluctuates between 12.5% in Ireland and up to 37% in Italy.
- The Government has decided to increase the coefficients of real estate property. A fierce reaction has also been expressed concerning this measure on the assertion that it damages the real estate sector and affects ordinary people’s interest etc.
The proposal as formulated will affect 8,000 people or enterprises – 1% of the population – whose real estate property exceeds in current prices 5 million Euros. As the Finance Minister has stated this measure will bring to the state 10 million Euros every year and each one of the 8,000 big owners will pay around 1,250 Euros every year, quite a small number for such a fuss to be created.
But the government package also contains other measures that are being hushed or distorted.
For the first time a Government has dared to deal with the issue of the number of civil servants by aiming to reduce their number by 1,000 every year by 2013. Since 1990 until now, the number of civil servants in the wider public sector has increased from 32,000 to 52,000. If the goal will be fulfilled it will be the first time that a reduction and not an increase will be recorded.
For the first time the discussion of the pensions in the wider public sector has been raised, aiming at the radical restructuring of the existing system.
For the first time such a serious effort to combat tax evasion and φοροαποφυγη is underway with the tabling of 22 relevant bills in Parliament. The President himself met with and talked to the personnel of the Inland Revenue Department, stressing the importance the government attaches to this issue.
Apart from these measures, targeted measures have also been promoted for social benefits, measures to curb the operational costs of the state, town planning amnesty, the freezing of wages in the Public Sector (which was agreed with the trade union organizations).
Every objective observer can distinguish the clear difference between the measures proposed by the Cyprus government with those taken or will be implemented in the majority of European countries. The only conclusion one can draw is that reason and a responsible stand are absent and that demagogy and petty expediencies prevail.
Head of the Research and Study Department of PEO
30TH June 2010