Cyprus Editorial: Another fumble with the National Solidarity Fund

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Just as we started to believe what the government has been feeding us, that the economy has resumed on a recovery path and boasts the second highest growth rate in the EU, the Anastasiades administration announced it was setting up a National Solidarity Fund to bail out investors who lost millions in bank bonds in 2013.

Finance Minister Haris Georghiades said that the fund would be endowed with 25 mln euros, which is literally a drop in the ocean compared to the 9.5 bln wiped out in the banking crisis four years ago.

That funding has been redirected from development budgets, thanks to some creative accounting, thus depriving other projects of much needed financing, with no indication if this will establish a precedent and all public surpluses are siphoned off to such rescue funds.

Furthermore, although Georghiades said that no new taxes would be announced, what the economy needs right now is more investment and tax breaks, not golden handouts to a privileged few.

The average SME is being forced to dish out an endless ream of local and consumer taxes, which in some cases have proven unbearable and small enterprises are continuing to shut down, despite the sugar-coating of the situation and the lavish declarations to fund start-ups and innovative initiatives.

This follows the stupid decision to bail out bankrupt football clubs with a further 19.5 mln euros, that will now be encouraged to hire more players on contracts they can’t afford and will secure state funding for stadia they can’t afford to build.

So, with the creation of the Solidarity Fund, the government has effectively laid to rest any notion of establishing a wealth fund, where revenues from oil and gas exploration licenses were supposed to have been deposited.

Cyprus had been toying with the idea of creating a wealth fund, similar to that based on the Norwegian model, only the government soon changed its mind and decided to spend that money (not a cent was saved for a ‘rainy day’), paying the public payroll and promising civil servants their wages would be reinstated to pre-2013 levels.

What is most worrying is that nobody noticed the comment that the new Solidarity Fund would be financed from revenues arising from state assets.

Are these the same unutilised state assets that the government has been trying to sell off? Will this also include revenues (aka “surpluses”) from other state-owned enterprises, such as Cyta, EAC, etc. or will these once again be re-directed to paying off state payrolls and paying down debts accrued by civil servants’ bankrupt pension funds?

It is too bad that on the one hand, the administration declares economic prudence, yet returns to haphazard payment methods of the past. Worse still, opposition voices are more concerned in keeping ‘state assets’ within public hands, simply in order to ensure that they, too, would have funds to money to pay to civil servants, in case they win the January elections.