The government’s intention to proceed with a further extension of the reduction in the excise tax on motor fuels, possibly until March 2027, was announced by Finance Minister Makis Keravnos. In remarks following the Cabinet meeting, he discussed the state of the Cypriot economy, defended the government’s fiscal policy, and left open the possibility of taking additional measures to address rising prices.
As he noted, the reduction in the tax on motor fuels, which expires at the end of November, will be resubmitted to the Cabinet for renewal. “What I can say today is that the reduction in tax rates on motor fuels, which expires at the end of this month, will be brought before the Cabinet with the aim of renewing it, possibly until March 2027,” he stated. At the same time, he noted that the government is monitoring economic developments and the pressures on households on a daily basis, while considering the possibility of additional measures.
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Referring to inflation, the Minister of Finance argued that the energy crisis is affecting virtually all economic activity, driving up production costs for businesses and household expenses. In fact, he warned of a possible upward trend in inflation, while expressing his satisfaction with the European Central Bank’s latest decision not to raise interest rates further.
Regarding the budget surplus, Makis Keravnos expressed his satisfaction with the performance of the Cypriot economy, attributing it to prudent and responsible fiscal management. Responding to criticism linking increased government revenue to inflation, he argued that higher VAT collections are not necessarily the result of a higher tax burden, but are also linked to increased consumption. “For consumption to increase, it means there is also disposable income. This is precisely what we are striving for through the government’s social policy,” he said, noting that budget surpluses are being used to support citizens, particularly vulnerable households.
The Minister also emphasized the importance of reducing public debt and maintaining fiscal reserves to address emergencies. As notable examples, he cited the unforeseen expenses incurred in combating foot-and-mouth disease and the fires in Limassol, which, as he noted, amounted to several million euros and were covered thanks to available fiscal margins. At the same time, he emphasized that debt reduction strengthens the country’s ability to tap international markets for borrowing when the need arises.
Responding to criticism regarding cuts in development spending, he clarified that these are delays in the implementation of specific projects and not a change in the government’s priorities. As he explained, certain projects inherited from previous governments face complex problems, which the government is working to resolve. At the same time, he noted that 23% of the state budget is allocated to social policy—a percentage that, according to him, has never been recorded in a previous budget. “Fiscal responsibility and social sensitivity are not conflicting concepts,” he emphasized.
Finally, Makis Keravnos referred to the upcoming Eurogroup and ECOFIN meetings, as well as the Republic of Cyprus’s request to the European Commission for a further reduction in the excise tax on heating oil. As he noted, a response from the relevant European authorities is expected, and he expressed cautious optimism regarding the outcome of the consultations. “From our communications so far, I sense a positive approach,” he stated, emphasizing that Cyprus will continue to seek greater flexibility within the European fiscal framework, based on its economic performance. “An economy that generates budget surpluses, reduces public debt, and posts a growth rate of around 3% cannot be subject to blanket restrictions,” he concluded.
