Government Secures Majority While Coalition Parties Reap Political Benefits

Yesterday’s agreement between Finance Minister Makis Keravnos and the coalition parties—representing DIKO, DISY, and DIAPA—has been hailed as a win-win solution for all stakeholders. The government has ensured the required parliamentary majority to swiftly pass a tax reform package that largely meets its criteria, while the coalition members have seized the opportunity to introduce tailored modifications that benefit tens of thousands of citizens. This strategic move, coming at a critical juncture in the pre-election campaign, marks the second major government reshuffle and appointment of seasoned figures, excluding EDEK.

Key Reforms And Financial Implications

According to reports, the reform is slated to take effect on January 1, 2026. The most significant changes will be incorporated via party amendments rather than separate government-proposed bills. The only immediate change on the government’s side will be an increase in tax relief for certain families—from incomes up to €80,000 to incomes up to €90,000—accordingly reducing the fiscal burden by an estimated €110 million annually.

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Principal Amendments In The Reform Package

• Enhanced Tax-Free Threshold: The exemption will rise from the current €19,500 to €22,000, with an intermediate proposal of €20,500 already on the government’s agenda. This adjustment represents an additional €1,500 per taxpayer, creating a projected extra cost of €45 million to the state.
• Increased Income Caps For Family Tax Relief: The thresholds for annual family income qualifying for tax deductions will be raised incrementally. For instance, a family with one child will now be eligible for deductions up to €90,000; for two children, the limit rises to €100,000, with higher thresholds delineated for larger families.
• Augmented Tax Deductions For Dependents: The tax relief for children and students (up to age 23 for women and 24 for men) will be calculated on a graduated scale. Families with one child retain a €1,000 deduction, while those with two or more benefit from progressively increased deductions up to €1,500 per child when the family has three or more children.
• Boost in Interest Deductions: The deduction for interest on mortgage loans and rental payments will be raised to €2,000 from the originally proposed €1,500, whereas the green investment incentive remains at €1,000.
• Revised Tax Brackets: The proposal outlines new tax rates as follows: 20% for incomes between €22,001 and €32,000; 25% for incomes from €32,001 to €42,000; 30% for incomes between €42,001 and €72,000; and 35% for earnings exceeding €72,001. Additional party amendments aim to meet the pre-election promise of increasing the tax exemption to €24,000 and abolishing the stamp duty, which currently generates €35 million compared to the €20 million planned in the government proposal.

Measures To Curb Tax Evasion And Ensure Fiscal Discipline

The Finance Ministry has stipulated that any amendments must not dilute the stringent measures against tax evasion and abusive practices embedded in the reform package. The proposals already include several safeguards such as strict controls over businesses with outstanding tax liabilities and new mechanisms to secure revenue against defaults.

Political Endorsement And Coalition Consensus

In a recent statement, Finance Minister Makis Keravnos confirmed the ministry’s acceptance of the revised non-taxable thresholds and graduated income criteria. He noted, “For families with five or more children, the upper income limit for tax relief increases significantly, reaching up to €200,000.”

Christiana Erotokritou, President of the Economic Committee at DIKO, praised the minister’s openness to the coalition’s amendments. She emphasized that DIKO is committed to achieving consensus and collaboration on economic issues to maintain Cyprus as an attractive hub for business.

Similarly, DISY’s Onurphios Koullas stressed the importance of a parliamentary majority and governmental consensus in ensuring a positive outcome for the nation’s economy, while DIAPA’s Alekos Tryfonidis highlighted that the reforms are designed to benefit low-income earners, the middle class, and small businesses within the established fiscal framework.

Mixed Reactions And Continuing Debate

Despite the overwhelming support from the coalition, some parliamentary parties expressed surprise and dismay at their exclusion from the meeting, arguing that similar proposals had been under consideration. Criticism also came from representatives such as SoTiris Ioannou from ELAM, who noted that proposals for incremental increases in family income thresholds and tax credits were submitted as early as last September. Environmental advocate Stavros Papadouris also criticized the selective attendance at the meeting, suggesting that several proposals originated from his own movement.

According to sources in the Finance Ministry, the meeting was initiated not by the minister but by the participating coalition parties, underscoring the dynamic interplay of political negotiation in the nation’s tax reform process.