President sends back foreclosure and VAT bills

President Nicos Anastasiades has refused to sign off on and has sent back to parliament three bills passed by the House recently – two relating to VAT on electricity and fuel, the other on extending a freeze on property foreclosures.

Acting on advice from the attorney-general, the president says the three bills violate various articles of the constitution.

Regarding the moratorium, or freeze, on property repossessions voted through by parliament, Anastasiades argues the measure has ceased being a temporary one, and as such risks being seen as a permanent state of affairs by both borrowers and banking regulators.

The latest in a series of extensions to the freeze would run for another three months – from August to end of October.

The president also said that the European Commission as well as credit rating agencies would view Cyprus’ foreclosures framework as ineffective and time-consuming – in turn impacting the value of the collateral and leading banks to raise their capital provisions.

Any suspension on repossessions, said Anastasiades, for the most part shields uncooperative borrowers at the expense of consistent debtors, creates disincentives for investment, risks downgrading the credit rating of both banks and the state, which would inevitably lead to a rise in interest rates, ultimately to the detriment of households and businesses.

The other two bills sent back by Anastasiades relate to parliament’s initiative to rein in inflation.

One – tabled by main opposition Akel – provided for zero VAT on fuel products until the end of the year. The government estimates a loss to state coffers of around €30 million. The other bill – co-sponsored by Diko and Dipa – would likewise have cut to zero the VAT levied on electricity invoices until the end of the year. The loss in state revenues from this is estimated at €45 million.

On these two, Anastasiades said they violate the principle of separation of powers – namely that the legislature has no authority to intervene with the state’s fiscal policy.

Parliament now has 15 days to decide on the president’s bill referrals – it can either accept the president’s position and withdraw the bills, or double down – in which case the matter would be adjudicated by the supreme court.