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By George Mouskides
President, Association for the Promotion of Property Development and Manager, FOX Smart Estate Agency
A fact everyone agrees with is that without economic growth we cannot exit the crisis.
Looking at the issue from its European dimension we realise that any country (Greece, Spain, Portugal) that tried to solve its fiscal deficit problems by cutting back on expenses and raising taxes, failed miserably.
What the measures did was to trap these countries in a vicious circle and lead their countries to even worse situations.
Cutting back on spending and wages brings about lower consumption. As companies battle with lower consumption, they have to reduce expenses. They usually do this by firing employees. Lower consumption also means fewer taxes for governments. The state is then called to cover the benefits for the unemployment, only making state finances even worse.
Reduced Growth
This unavoidably leads to reduced growth. It goes without saying that the state has to eliminate unnecessary spending, high wages, etc. This will also serve to ease the feeling of unequal treatment by private sector employees who usually work harder and longer only to receive lower rewards. We will not even attempt to make the comparison between state employees and unemployed or pensioners, who can barely survive on low or no incomes.
Hollande shows the way
It was very encouraging to hear the new French President, François Hollande point out that his economic policy will be spearheaded by growth attempts and not cutbacks. He is definitely moving in the right direction.
Hollande’s position was complemented by views expressed by other EU officials pointing to the same direction.
It is on the basis of all these views that we in Cyprus, must act to see a speedy exit from the crisis. All emphasis must be placed on taking measures to facilitate growth. It is encouraging that some state officials seem to have gotten the message.
Options
A two-pronged strategy will converge to growth. It boils down to investments by the state as well as the private sector.
As the state is fresh out of cash there remains one option. The private sector should be encouraged to move in the direction of growth. For this to happen private enterprises must be sure they will operate in a positive business environment. The way to achieve this is by securing loans with favourable conditions, lower interest rates and a stable taxation system.
The Real Estate sector
A sector of the economy, which is an important booster, is the real estate sector. It’s so vital that helping it grow is a one-way street.
Here are some of the measures to achieve this:
– Offering tax breaks for group investments in real estate (i.e. scrapping capital gains tax for investment companies);
– If a businessman buys real estate for business purposes the investment to be considered tax deductible;
– If a property is bought within a year from today, when sold anytime in the future no capital tax will apply;
– Broaden the limits of the law regarding the abolition of transfer rights to include re-sales as well. The present clauses of the law are solely benefiting developers. Some thought must be given to thousands of individuals who have property to sell to educate their children or pay back loans.
Some measures were announced recently, which we welcome, but are nothing more than a drop in the ocean. Can it be that the state officials that designed them are scared they will be successful and businesses will benefit? They should not forget that it is these businesses and private sector employees who pay their wages, and rejoice when these contributors are doing well financially.
There are a lot more incentives. The real issue is that our economy honchos must act swiftly; any delays will be unforgiving and will lead to even worse situations.
