Punishing the Saver

Developments in the Cypriot financial sector have sent shock waves around the world. The decision to heavily tax savers is ill advised and will only exacerbate Cyprus’s economic problems in the long term. The action that should have been taken is the exact opposite. The government should be encouraging savings and therefore investment in the Cypriot economy, boosting jobs and economic growth into the future and thereby broadening its fiscal base. Mum and Dad investors should be groomed to invest in local businesses but what the government has done is cause cash flow problems for these businesses and create fear and suspicion.

The repercussions of recent austerity measures will be that foreign investors take their money elsewhere and that Cypriot citizens invest abroad. This would benefit the stronger economies such as Germany.

Consumer and business confidence has been rocked. Who in their right mind would trust the banking system now? It would seem much safer to put money under the bed than put faith in a banking system that will steal your hard-earned money. Confidence, stability and steadfast, reliable and consistent policies are what are needed to restore the Cypriot economy. Recent events will only encourage a black market economy to thrive. Funds will not be traceable and the government won’t be able to take its slice of the action.

The government’s proposal to lift its ban on casinos is also perverse. Instead of encouraging good virtues such as individuals saving for their future and the future of their families, the government is espousing the possible virtues of raising funds, supposedly from tourists, via gambling. The reality will be to promote vices that damage local family life. It would be much better if the government raised taxes on non-essential items such as alcohol and cigarettes and directly taxed tourists more.

It seems to me that all over the world individuals that have the propensity to save, rather than spend everything they earn and live week to week, pay packet to pay packet, are punished for their responsible actions. Policies favour the spender with government assistance being means tested and taxes being scaled. The ethos to spend what we don’t have via credit cards and loans is what’s got the Western world into this financial crisis in the first place. Until this culture is changed we will continue to have financial instability.

On a personal level, what do the developments in Cyprus mean for me? Firstly, I’m considering whether I should I have my nest egg deposited in a bank. But what are the alternatives? Investing in superannuation where the government is frequently changing the rules and taxes; investing in shares which are also vulnerable; investing in property which is not readily liquidated, or do I go for gold? I should certainly diversify to reduce my risk.

What has been made so clear is how vulnerable we all are to outside influences which we have no control over. The “responsible” are punished for the irresponsible actions of others. What small pride we may gain from being financially independent can so quickly and easily be taken away from us.

Secondly, having had deposits in Cypriot banks in the past, I feel that I’ve dodged a bullet but I know expat Cypriots that haven’t been so lucky. Expats won’t be keen to hold money in Cypriot banks in the future and will have to make other arrangements for regular trips to visit relatives and for their retirement dreams.

Thirdly, the question that comes to mind is why such a hard line on Cyprus? Do we expect there to be a butterfly effect? Of course, some investors with the funds to buy when share market prices and property are low will benefit from this crisis if they can hold onto stocks until better times. But on the whole this crazy, brutal policy response will have harmful economic and social consequences.

On a final note, to all Cypriots looking for somewhere to invest, Australia is open for business and we welcome your investment dollar with open arms!

Image Credit

“Cyprus Flag” © Cyprusnet

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