Cyprus needs targeted social policy to combat inequality

Modern societies are characterised by a concentration of wealth among a small proportion of citizens and by growing social inequalities. In Cyprus, political parties, organised groups and many citizens argue that “the numbers are prospering, but the people are not”. The problem has intensified due to the recent global energy crisis, which has had a particularly adverse impact on vulnerable households. Under these circumstances, the discussion surrounding an effective social protection framework becomes especially important. The objective should be not only to provide targeted support to vulnerable groups, but, at the same time, to empower them to reduce their dependence on the state and achieve greater self-sufficiency. In Cyprus, social protection expenditure amounted to 19 per cent of GDP in 2023, a figure significantly lower than the European Union average of 28 per cent. However, this difference does not solely reflect the level of social protection, as it is also influenced by various factors, such as population ageing, which increases pension spending, and the overall health profile of the population. Consequently, indicators of social inequality, such as the Gini coefficient and the risk of poverty rate, are more representative measures. According to these indicators, Cyprus stands close to the EU average. The largest share of social expenditure is allocated to pensions and healthcare. At the same time, programmes, such as the Guaranteed Minimum Income (GMI), disability benefits, child benefits and student grants, are in operation. Significant resources are also directed towards education and training, which are crucial for social mobility. Nevertheless, a major weakness in Cyprus is that the overwhelming majority of social spending is not targeted. In practice, only the GMI is granted on the basis of strict income criteria (means tested). Based on the above, the following policy measures are proposed. Vulnerable groups should be identified and registered digitally, based on an update of the relevant University of Cyprus study, allowing for more effective targeting in practice. Any expansion of existing social schemes should, at least for the majority of such schemes, be based on a targeted and means-tested basis. The gradual adjustment of the GMI, as the main pillar of social policy, to ensure an improved coverage of beneficiaries’ basic needs. Stronger support for low-income pensioners, within the framework of pension reform, is needed. And the minimum wage should be gradually readjusted, in line with European Union guidelines. The key conclusion is that social protection should not be assessed solely on the basis of expenditure levels. Its success depends on achieving a balance between adequate support, incentives for employment and fiscal sustainability. The current satisfactory performance of the Cypriot economy provides an opportunity to implement these targeted reforms without jeopardising fiscal stability.