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Cyprus is about to get on a runaway train headed for tax rises that could not have come at a worse time – as Europe and the euro zone tries to set itself on a path towards growth once again, we will be ridiculed as nearly unreliable as Greece when it comes to reforms and reviving our economy.
Central Bank Governor Athanasios Orphanides warned on Saturday that Cyprus may need to raise taxes even more in an effort to pay down the public sector deficit that is rapidly getting out of hand. On Friday Moody’s lowered the sovereign ratings for Cyprus saying that our banks may resort to a state rescue, while the banks were slapped with another downgrade on Tuesday.
This suggest that the rating agencies are not confident that any capital raising by the banks will provide a safety cushion before the final deadline of a bailout-or-not next June.
Although our bankers are certain that the market will support a capital increase, despite their share prices being hammered daily, nothing can happen unless the government tries to spur growth, reduce unemployment and get people to pay their taxes normally again.
Screaming that the Russian loan of 2.5 bln euros and the impending discovery and export of natural gas will save the day are just lies that the gullible public has been duped to accept. The loan will come at a cost and any gas finds cannot be commercially exploited before 2020.
That leaves the government with only one thing to do – cut spending now and reform the public sector in order to save billions from what is wasted on civil servants. Raising taxes and not encouraging growth, while fearful of any public sector cuts will be like throwing any little money raised into a growing black hole that will continue to absorb as much as we throw in, as long as the government does not have the courage to do put an end to decades of abuse of taxpayers’ money.
Perhaps now is the time for the semi-unified front of the opposition parties to threaten to reject the 2012 state budget, unless it includes drastic cuts and reforms, and does not defer the matter into the next year.
