HOURS AFTER Cyprus was formally placed under EU supervision for its excessive budget deficit, the Finance Minister yesterday put on a brave face, saying the government would go it alone, if it had to, in efforts to better the state of public finances.
“In the absence of consensus from the political parties… the government is launching a major drive to cut expenditures and reduce the state payroll,” Charilaos Stavrakis said.
He was referring to last week’s defeat in parliament of two government bills aimed at increasing IPT and corporate tax, which the administration wanted to push through to increase state revenues.
He went on to call on parties and social partners to “help us in our effort to streamline state finances.”
Stavrakis was speaking after arriving from Brussels, where he held a series of meetings with the finance ministers of EU countries.
Yesterday the European Union’s Economic and Financial Affairs Council (ECOFIN) decided that Cyprus must reduce its budget deficit to below 3 per cent of gross domestic product (GDP) by the end of 2012, and has a deadline of January 13, 2011 for taking corrective measures.
At yesterday’s meeting in Brussels, attended by Stavrakis, ECOFIN formally opened excessive deficit procedures (EDPs) for Bulgaria, Denmark, Cyprus and Finland and issued recommendations on the corrective action to be taken.
The European Commission (EC) decided in June to place Cyprus under an EDP as set out in the Stability and Growth Pact, after the government notified the EC in April of a budget deficit of 6.1 per cent of GDP in 2009, and a public debt expected to reach 62.0 per cent of GDP in 2010, compared to the acceptable limit of 60.0 per cent.
This means that 24 out of 27 EU member states are now under an ongoing EDP, the only exceptions being Luxembourg, Estonia and Sweden. Under Cyprus’ EDP, the government must commit to reduce the budget deficit by 1.75 per cent each year until the end of 2012, beginning with a target of 6.0 per cent deficit by the end of 2010.
Stavrakis warned that countries failing to comply would be subjected to “severe penalties, possibly by the EU denying them hundreds of millions of euros in structural funds.”
“This is a very serious development, because it means that unless Cyprus complies… it will represent a blow to the pocket of the Cypriot taxpayer,” he said.
Asked how the government would come up with the revenue to plug the shortfall, Stavrakis remained upbeat, pointing for example to measures approved by the Cabinet aiming to slash state expenditures by €80 million this year.
“For the first time ever, there has been a reduction in personnel in the broader public sector, as a result of which the state payroll for the first six months of this year has increased by only 0.8 per cent, which is the smallest increase of the past 30 years,” he said.
