Government assessing fiscal impact of prolonging inflation measures

The Ministry of Finance is examining the fiscal impact of a possible extension of support measures against inflation. This is because the state stands to lose revenue if the reduction of consumption tax on fuel for transportation and heating, as well as the subsidy on electricity, continues for several more months. From the latest update on these three measures, the state has incurred/will incur revenue losses of approximately €72 million.

Technocrats from the relevant ministry, besides considering the fiscal impact, are assessing whether fuel prices have risen to a degree that justifies the continuation of economic support. The evaluation of the measures follows directives given by the President of the Republic to the Minister of Finance. The electricity subsidy expires at the end of the month, the reduction of the consumption tax on transportation fuel expires on March 3rd, and the reduction of the consumption tax on heating oil at the end of March.

Moreover, around late May, the zero-rating of VAT on various products will also expire. Yesterday, Government Spokesperson Konstantinos Letymbiotis stated that decisions will be made before the measures expire. Regarding the increase in electricity prices, the spokesperson mentioned that the goal of the country’s energy program is to provide citizens with affordable electricity. Yesterday afternoon, the Minister of Energy met with the Board of Directors of the Electricity Authority of Cyprus, where they discussed the possibility of increasing electricity prices.

However, for this year, the Electricity Authority of Cyprus has requested a 6% increase in electricity prices from the Regulatory Authority for Energy, while for last year, they requested a 25% increase, a proposal that the Regulatory Authority rejected, leading to litigation. Increases in electricity prices will also occur with the increase in pollution fees and green taxation. For the latter, the Ministry of Finance has prepared a bill that has been with the Legal Service since last December for legislative review and is expected to be submitted to the House of Representatives in March.

In addition, the public consultation on regulations for imposing environmental fees is expected to be completed, and dialogue on waste disposal fees will begin. However, the new increases in electricity prices have disturbed the parties. DISY, in a statement, emphasizes the need for Cyprus to have a much more ambitious plan towards the effort for the energy transition to renewables, as well as energy-saving investments. For its part, AKEL reintroduces the issue of taxing the windfall profits of energy companies, calling on the Government to promote it. Additionally, it calls on the Government to continue subsidizing electricity and, at the same time, to take other compensatory measures. DIPA MP Marinos Moushiouttas noted that during the meeting the party will have with the President of the Republic, they will demand the continuation of the electricity subsidy.