June 21, 2007

Refugee Problem and Some Solutions

To those of you growing up in Limassol and Pafos in the 1980s, that have grown up with the comment, "All these refugees were rich, I have never met one who was poor", I have to tell you that they might not have been rich, but they were a lot richer than the average person in Limassol or Pafos until 1974.

Now, in 2007, with the realization among all that the Denktas two-state solution is fast gaining ground, the refugees have realized that maybe they should not be shouldering the burden of the 1974 disaster on their own.

What is to be done? Well, there is, at least one, solution. Land and house prices have gone through the roof in the last 10 years based on the limited supply of land, growth and increased immigration in Stravaraland. The despondent refugees (most of them anyway) and their children had to bear not only the burden from losing their land in 1974, but the additional cost of having to buy at higher prices from the non-refugees. And the prices are driven higher by the limited supply of land caused by the occupation of the North, and the added demand from refugees, their children, immigrants and rich retirees from Europe.

What is the solution to alleviate the problem of the refugees? It is not the current policy of giving low interest loans to them to further increase prices.

The solution is: introduce a capital gains tax at 40% from selling property or land. Half of all the proceeds from this tax go to The Refugee Fund. Any refugee can get shares to this fund and can do what they want with them, after an initial period of time (say 2 years). The allocation of shares will be means-tested, both back in time (ie in 1974) and now (ie 2007), but this will be a special means-tested type of deal. Only the poor refugees now, who were rich in 1974 will be allocated shares. Once you are approved (rich then, poor now), your total share allocation will be determined based on the amount of property you lost in 1974.

I can go into the advantages or disadvantages of this proposal, the details of it, but I think this is a reasonable way to go forward, something that should have been done at around 1980, a few years after the invasion when it had become clear that no solution was in sight. The current government might not have the courage to initiate such a discussion, but I do hope some refugees somewhere in Stravaraland are reading this blog, and they might take the idea to heart.


Blogger VzVs said...

Without trying to offend you I think your proposal is naive, emotional and quite short sighted. Let alone infeasible and far from any economic principle.
The general idea is to treat the causes of the problem and not the symptoms and the root of the problem here is not the uneven distribution of income but the very poor conditions for economic development.

21 June, 2007 15:06  
Blogger firfiris said...

I have never realised that raising taxes help people. Apparently you assume that all the many (40%) gained in a capital gains tax will go to the fund. Assuming not much money is lost because of beaurocracy then what will be left at the end of the day is a subsidy for refugees so they can afford to buy land at more inflated prices. Say a plot of land currently costs 100.000. If there is a 40% capital gains tax then I will jack the price to 160.000 so I will have more or less a 100.000 profit.. It is unfair I believe (even though charitable and morally justifiable) to support one part of the population on the back of another. It is not the LEmesianos or Pafitis fault if the Morfitis and Keryniotis lost his house, and I speak as the child of refugees. More imaginative and more effective solutions are required. May I suggest tax exemptions, low interest loans (like Foreas Isis Katanomis Varon does) and the like. But in no case should one group subsidise the other. Seldom do taxes keep prices down and solve problems, on the contrary.

21 June, 2007 15:07  
Blogger apodimos Kypreos said...

No offence taken. Note that unlike what you say, the idea is perfectly feasible, it only needs to be voted in parliament. As far as economic principles, note the taxes you observe around you. As far as the poor conditions of economic development, do you think Stravaraland is poor relatively?

This is a moral issue, you suggest that the economy might be hurt from this measure but capital gains on an asset that is inflated due to the loss of half the country does not sound either inequitable or inefficient.

You did not read carefully my 10 line proposal as to who gains and by how much. If you think you can pass a 40% tax on to the buyer then all the better for my proposal, the refugee who owns no land gets part of the 40%.

Taxes are in general "bad" but maybe in this case they are not that bad. You are taxing the PROFITS from the land non-refugees own to give some of the gain to refugees. I do not say that it is the fault of the Lemesianos or Pafitis that refugees became refugees, but if an earthquake takes place in Pafos, I would expect that (even though it is not the fault of the Pafians) the government will help them by raising funds from the Lefkosiates.

As for your last point, do you think the tax exemptions or the low interest loans fall from the sky? The government (that is both the refugee and non-refugee tax payer) are paying for them. So, it is a similar tax (through other means) and it is paid by everyone. If you reread your last sentence, finally, you will find it contradicts your second to last sentence.

21 June, 2007 16:54  
Blogger Kritidis said...

Well, just to note that according to a recent University of Cyprus Study
(published on politis on 13/6) the cost of the turkish invasion up to now is CYP6 billion.
The government ha so far contributed CYP2 billion.
The rest was up to the refugees.
CYP4 billion!
'nuff said.

22 June, 2007 10:55  
Blogger firfiris said...

@apodimos kypreos,

Once more, and assuming you are right, if a refugee like my parents managed somehow to buy land after the war, should that land be taxed at 40% They wouldn't want to sell it then. Refugees, even though marginalised and victimised because of the invasion cannot expect the state to cut short all their losses because this way not only will they never have an incentive to move on (and I know it sounds hard and harsh but it is the same principle to unemployment benefits I'm implying here..if they are too generous people will chose not to work) but they will penalise the rest as well.
Low interest rates do not fall from teh sky, they are a result of a central bank's policy given the current inflation rates and tax exemptions can occur if there is political will. An example would be the re-instating of Cypriot's money stashed in foreign banks at a nominal 5% rate that took place two years ago. It was a one time off thing.
Tax exemption can be in the form of educational vouchers (for universities abroad), assistance in buying cars and everything to help refugees help themselves. I still don't see where you see the contradiction in my last two sentences.
I see your point regarding my last two sentences. What I meant is that any support for the refugees must not come from taxing a specific group of people (the rich or the land owners) but be universal in type with the aim to provide insentive to refugees.

And a last note, an earthquake is an act of God, an invasion is not. An earthquake is covered by insurance policy whereas an invasion doesn't.

22 June, 2007 13:14  
Anonymous Anonymous said...

I will not comment on the proposal as such but I find extremely useful that this idea is promoted and someone sets it on the table for discussion. This can be a very interesting political tool for escaping from the deadend we reached after 2004.

After decades of avoiding to touch this hot issue it is time that we realise that the no-war no-peace situation is no solution. Just by bringing up this idea a debate will arose from people either supporting it or rejecting it. It does not matter who (or how many) agrees or disagrees. Once this debate is generated then the ungly cypriot politicians will have to face the Cyprus problem in relation to the realities of the ground and hopefully for the first time will be forced to speak the truth without hidding behind some very general, "patriotic" slogans.

25 June, 2007 03:11  
Blogger apodimos Kypreos said...

@ firfiris

No, I dont think the people (either refugess or non-refugees) who bought land after 1974 should be paying the REFUGEE CAPITAL GAINS TAX.

Those are details of the proposal.

As is the level of tax (40% is on the high end).

I will think about this and write something more detailed in the near future hopefully.

But the main principle is sound: no real help was given to these people and the results are for all to see when you go into the refugee neighborhoods 33 years on. The richest part of society got wiped out, and all they got was some T/C properties based on the contacts that they had and based on who left fastest from their property. Guess who left fastest from their property (the ones that had nothing left fastest). And the response of the state was to put a REFUGEE STAMP as a means to generate cash for these people! The treatment of these people will be uncovered, over time, to be the worst scandal in modern Cypriot history. Give it a few years and you will see.

25 June, 2007 11:10  

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