No more special favours

4 mins read

An economic and business policy is not a list of promises about what a presidential candidate will do for every social and professional group in the country to win their votes.

Economic policy must be about a vision of the future, a way of getting there, and a set of guiding principles to face unexpected risks.

An economic policy must meet the challenges of the present and the expectations of future generations.

Ultimately, it is about building a successful economy.

And that is no easy task, judging by the many recent experiences of crises and failures.

Cyprus suffered such a failure in 2013.

A successful economy is built with an unwavering commitment to inclusion, governance, accountability, and the rule of law.

It needs a firm hand on the steering wheel that will not cater to special interest groups.

The current government submitted to special interest groups with the golden passports, and the country lost its credibility.

Weak institutions, too much political power concentrated in too few hands, lack of transparency, and pervasive and entrenched corruption can not produce a successful economy.

Not by a long shot.

Our country does not score highly on any of these characteristics. Our recent governments do not believe in meritocracy.

They have cultivated a society of favouritism and nepotism. Political power is not widely distributed, and politicians are not held accountable.

If we were a meritocratic society with independent, accountable, and well-functioning institutions, we wouldn’t have had the stock market scandal of 2000, the dual banking-sovereign debt crisis of 2013 or the golden passport scandal.

Our vision of a united, green, just, and inclusive society will drive our economic policy.

At the heart of our policies is improving the quality, independence, accountability, and inclusiveness of our institutions.

Independence means freedom from political interference. Inclusive means accessibility and equal opportunities for all.

It is not the government that makes the economy, it is the entrepreneurial spirit of the individual, and the government’s role is to liberate the immense creative forces of Cypriot society.

We will focus on fighting exclusion and reducing the income inequalities that keep many on the brink of poverty. This will not be an easy task.

We will need to raise the minimum wage and extend its coverage gradually.

We will need to make our economy more productive by reallocating resources to high-value-added, knowledge-intensive and export-oriented activities.

We will need to reform our social protection policies so that no one is left behind.

This is an area where Cyprus has one of the lowest spending ratios in the European Union.

We need a state machine focused on good governance and serving the citizens.

Our economic policy will recognise the crucial importance of sound public finances.

We are taking stock of the large public debt hanging over our heads and those of future generations.

The times ahead pose significant risks with higher-than-average inflation, and increasing interest costs will rise with it.

We need to manage debt carefully, and we will do so.

Debt should pay for itself by investing in growth projects, not pass the burden to future generations.

We will need to improve the efficiency and effectiveness of our public spending, rebalancing it where there are imbalances, as in the area of social protection already mentioned.

We need a competent and fair tax system.

Our tax system needs to be updated and needs to be reformed.

If we are to maintain our low corporate tax environment, as we believe we should, we must carefully examine income and capital gains taxation.

Indirect taxes, which are relatively regressive, account for a larger share of our tax revenues than in almost any other country in the European Union.

We recognise that inflation has many negative consequences.

It punishes the more prudent among us, the savers, who see their savings eroded by inflation.

Remember that inflation is not the same for all income groups.

The lower income groups, who spend a disproportionate amount of their income on energy and food, are effectively facing much higher inflation than the average rate.

We need to pay attention to these lower-income groups and alleviate their burden through various measures, including targeted direct transfers.

This is also part of inclusive growth.

The broader problem is not just inflation, it is a cost-of-living crisis, and we will address it in a targeted and direct way.

We live in a decade of economic transition and should grab the opportunity.

Green transition

We need to accelerate our digital transformation and green transition from fossil fuels to renewable energy sources such as solar and wind.

We perform poorly in these areas, as evidenced by our low rankings in relevant indices.

The government presents its failures as success stories.

But we are still paying one of the highest fines in the EU for missing our carbon emissions targets and having to buy allowances from surplus member states.

The success of this journey of economic transformation will depend on the quantity and quality of our public and private investments and on the reforms that improve the business environment while maintaining a measured balance between equity and efficiency.

The performance of our economy over the past decade is no cause for celebration or complacency.

We had a strong recovery in 2015-19 after a long and devastating recession in 2012-14.

We had a strong recovery in 2021-22 after a deep covid-induced recession in 2020, much of which consisted of recovering lost tourism and revenue decimated by the pandemic.

The economy was propped up with significant fiscal largesse amid conditions of extraordinary monetary easing.

This period of large fiscal and monetary accommodation, with historically low borrowing costs, is now behind us.

Let’s be clear about this. Our economy is not a miracle economy.

It is a middle-income, middle-growth economy with an average growth performance of 2.5% over twenty years.

This is a relatively low performance given our level of prosperity compared to the high performers in our peer group of Member States.

We need to roll up our sleeves and do whatever it takes to create a more inclusive and higher-performing economy with a long-term focus, efficient public and private sector investment and social sensitivity.

Free from obligations to special interest groups and surrounding myself with competent economic advisors experienced with the EU economic policies, I can deliver the Cyprus Economy of 2035: fair, green, and inclusive.

By Achilleas Demetriades 2023 Presidential candidate