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By George Mouskides
Our economy is in urgent need of liquidity and neither the real estate market nor any other investments will get a much-needed boost without securing loans first.
On the other hand, the gap between loan and savings interest rates is too wide. This can only shrink with the reduction of savings interest but most importantly with that of loans interest rates, once market liquidity improves.
At the same time, liquidity will also help reduce the number of non-performing loans (NPLs).
So, where’s the cash?
It is widely rumoured that Cypriots keep about 1.5-2 bln euros outside of the banking system, in bank vaults, houses, etc.
It is also not a secret that many Cypriots have significant deposits abroad, while many of these deposits originate from undeclared income.
Based on all these factors and given the fact that the market is craving for liquidity, is it perhaps not time to go ahead with a new tax amnesty?
Similarly, isn’t it also timely to offer incentives so that declared funds find their way into the banks?
In other words, what we should be aiming for is a tax amnesty for undeclared funds to find their way home and incentives for declared funds to stay here.
With the stress tests behind us, the European Central Bank (ECB), could guarantee new deposits, perhaps even in excess of 100,00 euros, say up to 500,000, in cooperation with the Central Bank of Cyprus. These deposits may carry a reduced interest rate as a cost for the guarantee.
Yet another suggestion would be for the ECB, to issue bonds for Cypriot buyers through Cypriot banks and deposit the funds with the banks so that they can benefit from the generated liquidity.
As far as undeclared funds are concerned, a minimum taxation should apply for them to be deposited in Cypriot banks, with, say, a 30-day grace period. All deposits made within this period should be considered taxed funds and must be ignored for purposes of capital statement.
Even if only 1 bln euros find their way to the banks, this will increase liquidity and be a boost for many sectors of the economy, including that of real estate.
It should be made clear however, that anti-money laundering regulations should apply to the full (illegal activities, drug sales) and such funds will never be allowed to permeate into the banking system.
We expect that bold moves, like the tax amnesty, are the ones required and should help the government bring about the much-needed economic growth.
George Mouskides is General Manager, FOX Smart Estate Agency and a Licensed Estate Agent, US Certified Public Accountant
