The Cyprus Cabinet, under the chairmanship of President Tassos Papadopoulos announced the third package of social cohesion measures, worth about CYP 111.4 mln or EUR 190 mln, with plans to increase the tax-free income threshold and raise pensions and cash grants to boost flagging birth rates ahead of eurozone admission and presidential elections next year.
Over 112,000 people, including pensioners, single parent families, paraplegics, low income earners and childless couples, will benefit from the  social cohesion package.
“We want both numbers and people to prosper,” said President Tassos Papadopoulos, widely expected to seek a second five-year term in February 2008.
The president said the package differed from previous ones in that almost all benefits were permanent and had taken on board most suggestions made by coalition parties and unions, adding social expenditure had more than doubled, no new taxes had been imposed, car tax had gone down, as had income tax and VAT.
“We are strengthening the population’s financially weakest groups, while with tax reductions we are paving the way for every family to enjoy a better quality of life,†he said.
The President stated that the package will:
(a) Increase the low pensions and the subsequent improvement of the quality of life for 56,000 pensioners;
(b) Offer further financial assistance to vulnerable groups of the population, such as single parent families, persons with special needs and those suffering from chronic illness or the handicap;
(c) Encourage an increase in the birth rate with measures for 17,000 families with
three children, additional maternity leave and a rise in the allowance for soldiers;
(d) Reduce the taxation burden with the increase of the tax-free annual income
ceiling to CYP10750 in 2007 and CYP11.350 in 2008;
(e) Reduction of VAT from 15% to 5% for a large number of products and services,
with the consent of the EU, and
(f) Strengthening of the protection of the environment with measures to withdraw old
cars and tax-free biofuel.
President Papadopoulos stated that this was a broader package because the social
measures addressed over 112,000 Cypriots, about a seventh of the population, while the taxation measures affected all Cypriot citizens.
Finance Minister Michalis Sarris said the package would not affect the government’s financial goals.
Regarding increases for low pensions, the package includes an increase of 13.4% for pensions up to CYP200, an increase of 11.4% for pensions between CYP200 and CYP250 and an increase of 5.1% for pensions between CYP250 and CYP310.
In total this measure will cover 56,223 people – almost half of all
Sarris said additional aid would be given to vulnerable groups including CYP 1,000 to 7,000 people with special needs, a monthly care benefit of CYP 100 to 1,500 individuals with chronic conditions, an increase in care benefits to tetraplegics from CYP 189 to CYP 500 a month, a CYP 200 increase for benefits given to the blind, an additional CYP 50 per month to 1,500 single parent families and CYP 30 for every dependent child of single parent families under the poverty line.
To encourage the birth rate, the package foresees a budget of CYP 12 mln to improve child benefits and tertiary education subsidies for families with three children, he added. Maternity leave would also be extended from 16 weeks to 18 weeks, large families with incomes under CYP 20,000 would be given larger car allowances, and National Guard conscripts would receive an increase of CYP 10 in their monthly allowance.
Sarris said these measures would cover a total 17,038 families and 7,715 conscripts.
Furthermore subsidies to childless couples attempting artificial conception for the second time would also receive financial aid, he said.
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Tax bracket
Regarding the reduction of tax burdens, the government has decided to increase tax free incomes from CYP10,000 to CYP10,750 for 2007 and to CYP11,350 for 2008, something that will cost the government CYP 35 mln, he said.
Sarris also noted a reduction of the VAT coefficient from 15 to 5% for a large number of products and services including certain foods, sweets, bottled water, juices, hairdressing, contraceptives, theatre and cinema tickets and the abolition of consumption tax on soft drinks.
Sarris said this measure was supposed to counterbalance the increase in VAT on foodstuffs and medications which will come into force in January 2008.
Measures to protect the environment include a plan to withdraw old vehicles amounting to CYP 5 mln and an exemption from consumption tax for users of biofuel, he added.
The government thus did not meet opposition and AKEL party demands to lift the tax free bracket to CYP 12.000.
The Finance Minister added that the measures that supported pensioners and other vulnerable groups, as well as tax measures related to VAT would be implemented as soon as they were approved by parliament, while the measures of direct taxation (non-taxable income) and the environmental programmes would be implemented on January 1, 2008.
“The developments in 2006 and the first six months of 2007 confirm that the policy of financial reform is in line [with the government’s] ambitious, social and developmental goals,†he said, adding that the government had proved accession to the eurozone and strengthening the social state went “hand in handâ€.
Sarris added that the package had been made possible due to the country’s high development rate, low unemployment at 3.8%, low inflation at 1.4% and because it had reduced its public debt to 61% and would this year have a public deficit of one per cent.
Sarris also added that it was impossible to satisfy the needs and demands of every pressure group, when the package of measures was criticised by opposition parties and people with many children.
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