By Vakis Charalambous
- Economist, Member of the Central Committee of AKEL
At first glance, €70 million sounds like a significant support package to combat inflation. However, a substantive assessment of it cannot be made based solely on the announced amount. The real question is: how much of this support ultimately reaches households’ pockets?
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
The measures include positive steps. However, this does not negate the package’s significant weaknesses.
First and foremost, the measures are coming too late. The relief didn’t materialize yesterday. Price hikes for food, electricity, fuel, heating, and housing have already piled up. A household that has been paying more for months isn’t starting from scratch today. It is already shouldering the costs that came before.
Second, there is a serious issue of targeting. The electricity subsidy for vulnerable groups is necessary. The one-time €200 payment is also a helpful relief. However, thousands of low-wage workers, retirees, and families with children do not fall into the “vulnerable” categories, even though they struggle just as much to make ends meet.
A different approach would be more helpful. Expanding the social tariff program, automatically enrolling those who qualify, providing tiered support based on income and consumption, and implementing a permanent 5% VAT rate on electricity. Above all, however, a broader safety net is needed for low- and middle-income households.
The same problem is evident with heating. The reduction in the tax on heating oil is positive, but at 1,000 liters, the benefit is approximately €50, while the additional cost compared to last year may exceed €600. Instead of a blanket tax cut, there is a need for island-wide support based on income criteria, regardless of whether someone lives in the mountains or in the city, and regardless of whether they heat their home with heating oil, natural gas, or electricity.
Similarly, in response to the increased cost of transportation, more immediate measures can be implemented, such as a targeted transportation allowance for families with children, single-parent families, and low-income retirees, as well as reductions in vehicle registration fees for low- and middle-income earners.
The biggest question, however, concerns the composition of the €70 million. Approximately €45–50 million comes from VAT reductions. In other words, the bulk of the package does not constitute direct income support for households. And this raises a legitimate question: how can we ensure that the tax reduction will actually be passed on to the final price and not be lost amid new price hikes or absorbed into market margins?
At the same time, there are significant gaps. Housing, rent, and borrowing costs are currently among the greatest burdens on low- and middle-income households, with no substantive response to these issues in this particular package. As for solar panels, the VAT reduction is a positive step, but it is not enough for a household that cannot afford the €6,000 or €7,000 required for the initial investment. Targeted programs with greater subsidies for low-income households are needed, along with energy storage and retrofitting.
The debate, therefore, is not whether the measures are positive or negative. It is whether they are sufficient given the severity of the problem and whether the available resources are being allocated where they can have the greatest social impact.
With high surpluses and increased public revenues, there was—and still is—room for more and better support. Because at the end of the day, citizens don’t calculate the “fiscal cost” of a policy announcement. They count how much is left in their pocket after paying the electricity bill, filling up the car, heating the home, and covering the rent or their mortgage payment.
