ALTHOUGH the economy grew by 0.1 per cent in the first quarter of 2010, which means that Cyprus has technically emerged from recession, the political row over how to reduce the budget deficit rumbled on yesterday.
Figures released yesterday by the Statistical Service showed 0.1 per cent economic growth in the first quarter of 2010, compared to a 0.3 per cent contraction in the last three months of 2009. The Statistical Service put this first sign of positive growth after five quarters of contraction down to positive results in the banking and services sectors, plus an improved performance in tourism and industry.
Finance Minister Charilaos Stavrakis said that “technically this means that Cyprus has emerged from recession. The international economic environment is still very difficult, but despite that, we can see the first positive signs of a rebound of the Cypriot economy”. He added that his Ministry was sticking to its forecast of marginal economic growth of around 0.5 per cent this year.
The prospects for a turnaround in the economy were supported by a smaller year-on-year decline of 1.6 per cent in real GDP for the first three months of 2010, compared to a 2.9 per cent contraction in the fourth quarter of 2009.
Referring to the fact that on Tuesday the EU’s Economic and Financial Affairs Council (ECOFIN) approved Cyprus’ updated stability programme, despite “a series of pessimistic predictions” by the opposition parties, Stavrakis said “in this area also, within an exceptionally difficult environment, we have maintained the credibility of the Cypriot economy and the economic policy we are pursuing.”
However, he said, “with this marginal improvement in the Cypriot economy, it should in no way be thought that the package of measures for fiscal reform is no longer important.”
The Cyprus Chamber of Commerce and Industry (KEVE) made the same point yesterday – but in significantly different terms – with KEVE President Manthos Mavromatis slamming the suggestion made on Tuesday by AKEL deputy Yiannos Lamaris that the government might consider imposing a “temporary” supplementary tax on profits made by large companies, including the commercial banks.
Mavromatis linked the suggestion of a net 0.5-1.0 per cent increase in company taxation directly to President Demetris Christofias’ personal handling of the thorny issue of a public sector wage freeze, which has resulted in calls from both government party AKEL and the main trade union organisations for “big capital” to share the burden of the crisis.
He said that a 1.0 per cent increase would bring around €73 million more into the state coffers this year, but real-term pay increases of an average 3.5 per cent for civil servants through adjustments in wage-scales would amount to €70 million this year.
“What is the message the government wants to give? That is taxing businesses and undermining economic recovery in order to give real-term pay increases to the only group of the population that is not being affected by the crisis?”, asked Mavromatis.
He said that Cypriot companies will be lucky to limit the downturn in 2010 to 2009 levels, adding that the business sector’s efforts to restrain rising unemployment and promote growth needed to be supported rather than undermined through new taxation.
KEVE continued to call yesterday for a boost to growth and jobs by reducing the red tape that it insists is preventing infrastructure projects worth billions of euros – including golf courses, marinas, housing developments, hotels, medical centres – from going ahead.
Government partner DIKO was also less than positive about the prospect of a supplementary tax on company profits. Party vice president and House Finance Committee chairman Nicolas Papadopoulos said yesterday that a government which has failed to convince that it is willing to take the necessary steps to reduce public spending and cut back a wasteful state machine does not have the right to propose additional taxation.
“To date we have not seen a single measure in practice for limiting our deficits, we have not seen a single measure implemented for limiting state spending”, he said.
Papadopoulos added that DIKO is not prepared “to enter into dialogue over additional taxation for anyone before the government proves to us that it is willing to reduce waste, to reduce state spending, in order to show the Cypriot taxpayer that public finances are being managed in the best possible way.”
