Cyprus will extend lower VAT on electricity bills and a fuel price cap while boosting pensions to cushion the impact of runaway prices that have pushed inflation to its highest rate in over 40 years.
The package, costing an estimated €103 mln, sees VAT on electric bills charged at a lower coefficient of 10% from the standard 19% until August 31 and a cap on tax on fuel at the pumps until the same date.
The cabinet-approved measures extend a government policy adopted three months ago.
People in vulnerable groups will be eligible for a lower VAT rate of 5% on their electricity bills.
Finance Minister Constantinos Petrides said that the state would increase pensions to 165,000 beneficiaries and give vulnerable households one-off cash handouts based on their incomes and the number of dependants.
Inflation runs at 8.6% year on year in April, its highest since an annual record of 10.8% in 1981.
The government is spending €103 mln on low-income households to fence off the negative impact of the rising cost of living.
Petrides said that following the pandemic’s economic shock, Cyprus is entering a long period of rising inflation attributed to external factors, mainly the war in Ukraine.
“No government can kill inflation at its root, as increasing liquidity in the market may feed inflationary pressures leading to a vicious cycle of price increases,” said Petrides.
“Having this in mind, the government has introduced 11 measures to alleviate inflation pressure on low-income households.”
From July, pensions of 165,000 beneficiaries will increase by an average of 4.3%, with the cost of adjustment around €34 mln.
According to income, low-income families will be given a small lump sum between €60 and €150 for every child under the age of 18.
Starting from the lowest-income households, families with an income of up to €10,000 a month will get a lump sum of €150 for each child. Some 6,639 households are expected to benefit from this measure.
A family with three or more children and an income of 39,000 to 49,000 will receive €60 for every child under 18.
A total of 24,075 families and 45,883 children will benefit.
Another support measure concerns a subsidy plan for childcare services for children under 4, helping families out with fees at private kindergartens.
The measure will support 16,000 households with a monthly allowance that will cover 80% of tuition fees.
Families are expected to receive a monthly subsidy of €100 to €300 for each child. The measure will start in September.
There are increased subsidies for the installation of solar panels and thermal roof insulation, from €750 to €1,000 per installed kilowatt and for household consumers, from €250 to €375 per kilowatt.
Consumers will be entitled to an increased subsidy for an environmentally friendly energy upgrade in their homes. Some 19,500 families with a gross income below €19,000 will be added.
Furthermore, the government will instruct authorities to speed up applications for RES installations.
Other measures concern the support for farmers and animal breeders.
Some 5,500 farmers and animal breeders will benefit from some €9.5 mln.