THE STATE budget for 2012 was finally approved Friday night, after weeks of political bickering, public grandstanding, strikes and protests outside the legislature. Never before has a budget provoked such acrimony and caused such deep divisions in society, but never before have public finances been in such a mess, and so desperately in need of drastic remedies.
In the past, governments mostly followed the ‘spend-spend-spend’ mantra while ignoring the fact that this profligacy would eventually catch up with us. The Christofias government, which spent money like there was no tomorrow in its first two budgets and – despite the recession – failed to make any substantial cuts in its third, was eventually left with the thankless task of taking the unpopular measures.
It took these grudgingly, only after pressure was applied by the EU – which threatened sanctions if we failed to reduce the budget deficit – and the opposition parties offered to support them. While the spending cuts were being discussed, pressure groups affected by them gathered outside the legislature to voice their opposition, the public employees staged a work stoppage and on Wednesday the debate was held without a working sound system, because PASYDY called an impromptu 36-hour strike and legislature staff walked out.
This was not the main reason, however that the parties kept putting back the approval of the budget. The vote, scheduled for Thursday, was put back to early Friday afternoon, but did not start until after 8.30 in the evening as deputies engaged in frenzied efforts to impose additional cuts to proposed spending. In the end they decided amendments to the budget that cut state operational costs, which stood at €1.27 billion, by eight per cent and blocked an additional estimated €80-90 million of state spending.
Additional spending cuts were welcome, as the government revenue forecasts for 2012 were over-optimistic and could have made it difficult for the deficit target to be met, but the rushed way in which they were decided was not the wisest. Such amendments should not have been left to the last minute, because they prove problematic in the future. As for the blocking of an array of spending items, referred to as ‘crossing’, this will create additional work for the House finance committee as ‘crossed’ items need to be re-examined.
Some deputies predicted that the committee would have to be in session continuously in 2012 in order to re-examine those blocked amounts. Then again, if this forces the government to re-consider some of its spending and leads to a reduction in spending by even a third, it would have served a useful purpose. The government will complain about excessive interference by the legislature, but this was necessary given how reckless the government has been in its spending and how reticent it had been to cut it back.
The 2012 budget, thanks to the active involvement of the parties, is the most prudent of the profligate Chistofias presidency as it tackles the main weaknesses of public finances and brings us close to meeting the deficit target. The waste has been brought under control, to an extent, and some of the proposed spending will come under additional scrutiny at the finance committee in 2012, which is a good development, as the government cannot be trusted to voluntarily tighten the purse-strings.
The main weakness of the budget, highlighted by several deputies, was the failure to address the difficulties being faced by the private sector, which are in need of urgent attention. The banks which have been the engine of our economy are in deep trouble, thanks to their exposure to the Greek government debt; bank credit, over the next year or two, will be very tight and interest rates are certain to remain prohibitively high.
This will not only restrict investment, but will also put added pressure on businesses and employment.
But there were next to no measures aimed at kick-starting a stagnant economy, in a budget focused on imposing some control on the unproductive, resource sapping public sector. In fairness, forecasts of zero growth are the norm across the EU and are not exclusive to Cyprus, but if our public sector was not such a drain on resources, more funds could have been allocated to development projects.
A very difficult year lies ahead, but at least the 2012 budget will improve state finances, which is a start. And we have a small group of conscientious deputies, who did a much better job on cutting state spending than the government, to thank for this.
