The first impression of the tax reform presented yesterday seemed to move in a positive direction. However, upon closer examination, one identifies increasingly more weaknesses. Most notably, Nikos Christodoulides’ pre-election commitment to establish a tax-free income threshold of €24,000 has not been implemented.
Nevertheless, we must be fair critics. Therefore, we acknowledge that yesterday’s announcements contain several positive elements. These primarily concern certain incentives that enrich the tax model and reintroduce principles from systems applied in the past. For example, tax deductions for workers based on the number of children they have, deductions for household mortgage payments or rent up to €1,500, and deductions for home energy upgrades, installation of photovoltaic systems, purchase of electric vehicles, and more.
At the same time, however, we identify several negative aspects or shortcomings in the announcements, as they do not appear to address gaps or provide proportional support across all segments of society.
First, the across-the-board increase in tax-free income from €19,500 to €20,500 clearly falls short of public expectations – expectations which Christodoulides himself created with his pre-election pledge to raise the tax-free threshold to €24,000. Before Keraunos or anyone else from the government camp claims that, based on the proposed criteria, some might exceed this particular promise, we remind them that the President’s commitment made no reference to categorisation. As announced, it left voters with the impression it referred to an across-the-board increase.
Second, raising the tax-free threshold to €20,500 cannot be considered satisfactory for middle-income earners, considering the inflation rate in recent years and soaring prices. And because some might again argue that this problem is effectively addressed by the increase in the Cost of Living Allowance (COLA), it should be noted that most people in the private sector no longer benefit from this allowance.
Third, in connection with the previous point, it must be emphasised that even if the increase in the tax-free threshold to €20,500 is considered a step in the right direction, this element does not benefit one in two workers, since approximately 49% of employees were below the previous threshold of €19,500. That is to say, the proposed change offers no benefit whatsoever to all these people. This means the Government must find ways to provide benefits through other means to this enormous segment of the population.
Fourth, in a tax reform that was advertised as focusing on supporting the middle class, we observe substantial support for wealthy segments as well. The tax bracket with a 30% rate for incomes between €36,301-€60,000 rises to €40,001-€60,000, and the bracket with a 35% rate for incomes above €60,000 rises to €80,000! Thus, not only do capitalists benefit, but so do the President, ministers, and numerous other highly-paid officials!
Fifth, what was announced certainly does not allow us to speak of a comprehensive tax transformation but merely a modernisation of the tax framework for workers. This is because it includes nothing about VAT and various proposals from different quarters. Additionally, no measures are included to address the scourge of tax evasion, which has accumulated losses for the state amounting to several billion.
Sixth, to fully and clearly evaluate yesterday’s announcement, we must consider the taxes that will come for the green economy. If these are such that they will, for example, send fuel prices soaring, they will significantly undermine the impact of the proposed changes for low-income groups and the middle class.
Of course, more authoritative analyses will come from experts – the economists. Our observations attempt to identify certain weaknesses at first glance. What doesn’t require an expert to analyse is that Christodoulides’ pre-election commitment to a tax-free income threshold of €24,000 has not been fulfilled. Evidently, that blessed verb “I commit”, which was the Achilles’ heel of his predecessor, is carried forward as his own Achilles’ heel as well.
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