CYPRUS expects to achieve an almost balanced budget by 2010 by holding down costs, confronting a looming demographic crisis and establishing a health scheme by making people pay for their “sins”, a Finance ministry report said yesterday.
Cyprus, which hopes to adopt the euro as its currency on January 1, 2008, is pursuing a convergence programme designed to keep its deficit below 3.0 per cent of GDP and keep a lid on its public debt levels.
It also needs to reform its social security system, because of an ageing population, and it needs a national healthcare system. What the Finance Ministry referred to as “sin taxes” have been mulled as one way of paying it.
The ministry did not specify what sins would be taxed, but there has been some debate in the past on how some groups such as smokers might have to pay more than others.
The budget deficit is meeting forecasts of easing to 1.9 per cent of gross domestic product by the end of this year from 2.4 in 2005, and to 0.1 per cent by 2010.
Spending curbs were expected to account for the bulk of the adjustment, contributing a cumulative 1.7 per cent of GDP in savings from 2007 to 2010, while revenue improvements represented 0.1 per cent of GDP.
The report assessed public debt levels more favourably than previous estimates, forecasting they would subside to 64.7 per cent of GDP this year, 60.5 in 2007, and settle at 46.1 per cent by 2010.
The Convergence Report is a Finance Ministry roadmap of Cypriot progression to the euro zone from 2006 to 2010.
It also offers an insight on economic policy in years to come.
The strain on the benefits system of an ageing population could be addressed by upping retirement ages and tightening the eligibility of full pensions, and “sin taxes” is one way of paying for national health insurance, it suggests.
“A number of levers are being suggested; increase of contribution rates, introduction of so-called ‘sin taxes’, apply co-payment, reduced cover of certain services, etc.,” the Finance Ministry said in the report, submitted to Brussels.
Last month the International Monetary Fund urged Cyprus to act swiftly and reform its creaking social security system.
Without reform, it warned, Cyprus could start showing an incrementally higher public debt within ten years, and pensions which would require supplements from additional taxes within 15. (R)
