For Cyprus, The Pain Is Only Just Starting

Tyler Durden's picture

If the suffering, yet docile, Cypriot serfs thought deposit confiscation would be the end of their problems under the European feudal system, they are about to be shocked. Because as part of their banking sector bailout, the country is set to get a "loan" from the Troika, a loan which comes with a Memorandum of Understanding, aka a "blueprint for austerity", with dictates terms for government revenue increases and spending cuts (of the variety that nearly caused America's leader to blow a gasket when he was describing the untold devastation that would result if the rate of acceleration in US budget spending dared to be slowed down even by a tiny bit). Today, a draft of the revised Cypriot MOU being prepared by the head of the IMF mission to the island nation, Delia Velculescu, leaked and can be found in its 24 page entirety here. However, for the benefit of our Cypriot readers, here is the important part: the listing of the anticipated austerity tsunami coming, not to mention healthcare system, "pension reform" changes and other proposals the ECB and the IMF are imposing on Cyprus as part of their generosity to keep the recently insolvent country as a well-behaving serf in the Eurozone.

Key highlights:

  • Freeze public sector pensions
  • Increase the statutory retirement age by 2 years for the various categories of employees
  • Reduce preferential treatment of specific groups of employees, like members of the army and police force, in the occupational pension plans, in particular concerning the contribution to the lump-sum benefits;
  • Reduce certain benefits and privileges for state officials and senior government officials, in particular by
    suspending the right to travel first/business class by state officials,
    senior government officials and employees with the exception of
    transatlantic travel.
  • Increase excise duties on energy, i.e., on oil products, by increasing tax rate on motor fuels (petrol and gasoil) by EUR 0.07
  • Increase the standard VAT rate from 17% to 18%.
  • Introduce a tax of 20% on gains distributed to winners of betting by the National Lottery for winnings of EUR 5,000 or more
  • Increase fees for public services by at least 17% of the current values
  • Increase excise duties on tobacco products, in particular on fine-cut smoking tobacco, from EUR 60/kg to EUR 150/kg. Increase excise duties on cigarettes by EUR 0.20/per packet of 20 cigarettes.
  • Introduce a permanent contribution of 3% on pensionable earnings to Widows and Orphans Fund by state officials who are entitled to a pension and gratuity. Introduce a contribution of 6.8% on pensionable earnings by officials, who are entitled to a pension and gratuity but are not covered by the government's pension scheme or any other similar plan;
  • Actuarially reducing pension entitlements from the General Social Insurance Scheme by 0.5% per month for retirements earlier than the statutory retirement age at the latest from January 2013, in line with the planned increase in the minimum age for entitlement to an unreduced pension to reach 65 (by 6 months per year), between 2013 and 2016;
  • Ensure a reduction of seasonal hourly paid employees by 992 from 1806 in 2012 to 814.
  • Implement a four-year plan as prepared by the Public Administration and Personnel Department aimed at the abolition of at least 1880 permanent posts over the period 2013-2016.
  • Ensure additional revenues from property taxation of at least 70 million by updating the 1980 prices through application of the CPI index for the period 1980 to 2012
  • Increase the statutory corporate income tax rate to 12.5%; Increase the tax rate on interest and dividend income to 30%.
  • Increase the bank levy on deposits raised by banks and credit institutions in Cyprus from 0.11% to 0.15% with 25/60 of the revenue earmarked for a special account for a Financial Stability Fund
  • Undertake a reform of the tax system for motor vehicles, based on environmentally-friendly principles, with a view to raising additional revenues, through the annual road tax, the registration fee and excise duties, including motor fuel duties.
  • Ensure a reduction in total outlays for social transfers by at least EUR 113 million through: (a) the abolition of a number of redundant and overlapping schemes such as the mothers allowance, other family allowances and educational allowances; and (b) the abolition of supplementary allowances under public assistance, the abolition of the special grant and the streamlining of the Easter allowance for pensioners.
  • Ensure a reduction of at least EUR 29 million in the total outlays of allowances for employees in the public and broader public sector by i) taxing pensionable allowances provided to senior government officials and employees (secretarial services, representation, and hospitality allowances) in the public and broader public sector  ii) reducing the allowances provided to broader public sector employees and reducing all other allowances of broader public sector employees, government officials and hourly paid employees by 15%; and iii) reducing the daily overseas subsistence allowance for business trips by 15%. Ensure a further reduction the subsistence allowance of the current allowance when lunch/dinner is offered by 50% (20% - 45% of overseas subsistence allowance instead of 40% - 90% currently paid).

And last but not least:

  • Increase excise duties on beer by 25% from EUR 4.78 per hl to EUR 6.00 per hl per degree of pure alcohol of final product. Increase excise duties on ethyl alcohol from EUR 598.01 to EUR 956.82 per hl of pure alcohol.

So the stronger the booze, and the faster it gets one drunk, the more expensive is will be.

In brief: for the Cypriot serfs the pain is just starting.

Troika Draft MOU source