PARLIAMENT last night approved the 2012 state budget, cutting proposed state spending by some €120 million and drawing the fiscal shortfall below the government’s stated target of 2.5 per cent of GDP next year.
Lawmakers also blocked – a practice known as ‘crossing’ – a string of other expenses totaling around €90 million.
The budget was passed with 30 votes in favour – AKEL, EDEK and DIKO – and 20 against – main opposition DISY, EVROKO and the Green party.
MPs cut government proposed expenditure for next year by around 8.0 per cent.
As the government-proposed 2012 budget stood, it projected a deficit of between 2.4 and 2.5 per cent.
“We hope this (additional cuts) will bring the deficit to below 2.0 per cent next year,” said Nicholas Papadopoulos, chairman of parliament’s finance committee.
The fiscal shortfall is expected to hit 6.0 per cent this year.
Approval of the budget follows the passing of an additional raft of measures on Wednesday aimed at preventing the need for a bailout and EU sanctions for fiscal violations.
Included in Wednesday’s austerity package are freezes in public sector salaries for two years and an additional staggered tax on private-sector earnings.
Parliament also approved a two-point increase in VAT to 17 percent from March 1 and a three-point rise in defence tax on company dividends to 20 per cent.
Meanwhile, Fitch ratings agency warned yesterday that it may downgrade Cyprus and five other eurozone nations in the absence of a comprehensive solution to the region’s debt crisis.
The ratings agency placed the ratings of Cyprus, Belgium, Spain, Slovenia, Italy and Ireland in credit watch negative, which means a downgrade is possible within three months.
Cyprus has been hammered by ratings agencies this year for fiscal slippage and the large exposure of its banking sector to debt-crippled Greece.
High borrowing costs have shut the island out of international capital markets and Cyprus has resorted to a €2.5 billion loan from Russia to cover its financing needs.
Approval of the budget yesterday came after many hours of haggling, as MPs earmarked funds to be cut or ‘crossed’ which means they will undergo further scrutiny before parliament decides whether to release them or not.
“The (House) finance committee will become a standing committee because everything has to go through there,” a ruling AKEL lawmaker told the Cyprus Mail, commenting on the scale of earmarked funds.
The budget vote had been scheduled for Thursday but it was postponed to give time to lawmakers to prepare their amendments.
It had been re-scheduled for yesterday morning but it was moved to 3pm.
But the plenum did not convene until around 7pm with MPs having to go through some 69 pages of amendments before voting on the actual budget.
Included in the cuts are funds the government had allocated to hire spokespersons for the EU presidency — which Cyprus will assume in July 2012 — interest-free loans to civil servants for vehicle purchases, office supplies, personnel training, consultant services and vehicles and equipment – including four police vehicles equipped with water-cannons.
The ‘crossed’ items include 50 per cent of the public sector’s overtime allowance, €25 million allocated for asylum seekers and political refugees, €3.0 million for state sector workers’ unions PASYDY, SEK and PEO, and the wages of President Demetris Christofias’ advisers.
Lawmakers also blocked €280,000 from a total of €350,000 budgeted for renting a private jet for Christofias.
Other blocked funds concern various other benefits like heating, easter, Christmas and holiday allowances.
They also include a number of civil service perks deemed unreasonable when they became public last month: hospitality allowances for treating guests, good conduct allowances given to police officers, fire-fighters and prison personnel, and even an outdoors allowance, paid to land registry personnel working outside for four hours per day as compensation for the additional expense on clothing, shoes and dry cleaning.
Special duty allowances given for parachuting, diving and to slaughterhouse personnel were also ‘crossed.’
These allowances and benefits are over and above the salaries already received by civil servants.
