The government has no strategy to combat price increases

 

Article by Charis Polycarpou, Head of AKEL’s Economic Policy and AKEL Political Bureau member 

Sunday 12 June 2022, ‘Haravgi’ newspaper

There is no stronger evidence that the current Government has no real will to tackle price increases than the fact that the government ruling forces are presenting as measures to tackle price increases regulations that have already been included in approved legislation.

These are regulations that have been enshrined for years. The government’s announcement granting increases in pensions – increases that have been enshrined in laws for years and would have been given anyway as of 1 July – is a glaring admission by the Finance Minister that he has no plan in place. There is no greater underestimation of people’s collective intelligence than this admission.

The only positive thing for the government is that it has at long last decided to acknowledge the existence of the problem. It has taken it nine months of backtracking, denying reality, distorting figures and the like in its attempt to end the debate on price increases/high cost of living. A glaring example is the erroneous estimates that the state budget contained. The government predicted a 1.5% increase in prices for 2022 and before it had spoken the facts the government’s assessments were refuted. Inflation exceeded 5% in January 2022, before the war in Ukraine. Today it has risen sharply to 9%.

One would have expected that all through this time the government would have had the decency to acknowledge its mistake and move forward in a timely and decisive manner to elaborate a comprehensive plan to tackle price increases.

Instead of doing precisely that, the government remained in a defensive position, continuing to propagate a narrative that convinced no one and that was being promoted so as not to admit that the opposition, AKEL in particular, had foreseen and assessed the situation from the outset. That AKEL had correctly articulated the need for government intervention in the economy and had long ago put forward a comprehensive package of proposals. Proposals to reduce taxes, restore the Cost of Living Allowance, tackle cartels and price increases, set a cap on prices and adapt benefits that are not automatically adjusted to take into account the rate of inflation.

Indeed, despite the fact that in the European Union almost all member states, one after another, were applying for and winning exemptions to reduce energy and fuel costs, Cyprus was once again standing in the corner, refusing to take any measures for the benefit of society.

Firstly because the government couldn’t do so because of its international unreliability. Secondly, because it did not want to do so. That is why, up until mid-May, it was giving assurances and credentials – including to the IMF – that “there is no need for new measures to support the economy”.

The government’s main argument now to resist the series of additional measures proposed by AKEL and other opposition parties is that any additional measures must be based on fiscal possibilities., that ‘we don’t have much to support the economy’ says the Finance Minister.

But at the same time as the government invoked the need for fiscal discipline, it did not find a single word to say about the State’s additional revenues. At least €150 million more will have been collected by the State from the VAT on fuel alone compared to 2019. This money has emerged due to inflation and the government has an obligation to return it back to society. If the additional revenues from VAT and other taxes are added to this amount, then the myth of tight fiscal margins has collapsed like a house of cards.

All of the above point to a very simple conclusion. Namely, that the government doesn’t have the political will to combat price increases. That the government is hiding behind pretexts and excuses to avoid clashing with powerful economic interests. That in the name of the operation of the market and “unbridled competition”, the government permits unchecked rampant profiteering and price increases, which is to the detriment of society and, combined with wages remaining stagnant, with growing inequalities and the downgrading of the country’s standard of living.