Monday, March 18, 2013

Cyprus Punishes Prudency

Over the weekend, the news media were awash with developments in Cyprus where the government has announced that it is going to confiscate the savings of domiciliary account-holders as a means to revive its ailing economy. As the story goes and the clips showed, people rushed to Cash machines to withdraw their monies from the bank. Inevitable of course.

What is shocking is that a democratic government could make such a deplorable decision to raid citizens savings without any evidence or even allegation of criminal activity by the citizens. This move is also purely illogical and unfair. While the government, like every other in the world, is right to tax [its] people to help the economy, it is rather shocking that this tax is targetted at those who had been prudent to save; monies they also might have paid tax on already.

The danger with this move is that it can instigate a run on bank savings, not just in Cyprus, but across the European Union and even further afield. If people feel that the[ir] government can raid their income in banks to pillar their failing economy, they may try alternative measures.

Humans are inventors and money savings have gone through different systems in our evolution and most of those systems, although largely unused today, are still recallable and reusable. Monies have been saved in holes dug into the ground, under the bed, in lofts, tied into properties or materials possessions, etc; and all these measures are very revivable and not far away.

In the long run, suspecting that a government can raid your account and take away your money would also increase mistrust in banks and thus affect the same banking sector negatively.

As of today, the EU had strongly denied that it suggested this idea to Cyprus and Cyprus has on its side, blamed the EU for their proposed undemocratic taxation. No one knows which is truth.

Yet, it is not about who inspired or invented this, ultimately it's about who finally implements it. Hence the buck stops with Cyprus. To punish prudency and industriousness is utterly wrong.

People should be taxed but only on income. This tax is biased because those who can earns it but have no money saved in Cyprus, even though they live there, would then not contribute. However, a poor person who had scrapped to save or even who is safe-guarding a loan in a bank, would end up having part of that money confiscated. Worse still, if a loan, interest would still be paid on the portion confiscated by the government.

This is terribly regrettable and will cultivate mistrust in both government and banking as well as politics in general.

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