INTERIOR Minister Makis Keravnos yesterday said the government was determined to cut next year’s budget deficit within the eurozone ceiling.
The minister yesterday presented the 2005 budget to the House Finance Committee and pointed out that Cyprus was on the way to limit its budget deficit to 5.2 per cent of GDP by the end of this year and to 2.9 per cent by the end of 2005.
Cyprus now exceeds the eurozone limit of a three per cent budget deficit and a public debt, which should be lower than 60 per cent.
The island’s budget deficit last year reached 6.4 per cent while the public debt exceeded 70 per cent of the GDP.
It is expected that this year’s public debt would reach 72.6 per cent.
“The fiscal adjustments meet the obligations we have for adoption of the euro, we hope by 2007.
“That remains our target,” the minister said.
Keravnos added that it was not the current government’s intention to impose new taxation but was quick to add that taxes were a tool to be used when necessary.
“We do not have any intention (to impose new taxes); the condition of the economy does not allow taxation as it would create new problems,” Keravnos said.
The 2005 budget forecasts net spending at £3.55 billion and an income of £2.71 billion.
The government aims in reaching a growth rate of 4.3 per cent, while cutting unemployment and inflation down to 3.2 per cent and two per cent respectively.
Unemployment last year had reached 4.4 per cent and it is forecasted to remain the same this year.
The year is expected to close with a 2.5 per cent inflation while in 2003 it had reached 4.1 per cent.
In its bid to cut costs, the government is poised not to grant any public sector pay increases in 2005 while no new positions would be opened.
The government currently employs 35,845 permanent staff, 2,899 temporary and 8,581 hourly-wage personnel, which in 2005 will absorb £912.15 million in the form of wages and £183.45 million in pensions and bonuses.
According to the minister, civil service pensions are set to rise steadily and reach £381 million in 2010.
Keravnos said the forecasted figures made it imperative to raise the retirement age of civil servants to 63-years-old.
The committee heard that overtime costs had reached £37 million last year.
The government aimed in maintaining that cost at last year’s levels and gradually cutting it down drastically.
“The trade ministry cut overtime by 30 per cent; in 2005 it is expected that it would not pay a cent in overtime,” Keravnos said.
The committee heard that a three per cent cap has been set on ordinary budget expenses as well as a four per cent ceiling on development spending.
Around £371 million are slated for spending on development in 2005, with the biggest share going towards the construction of roads — £54.4 million.
A further £41.2 million would be spent on agricultural development and £32.8 million on public health.
The government hopes that better tax collection would also improve public finances.
Keravnos assured that income from taxation would improve with the improvement of automation that would bring a more efficient operation of state services in relation to stamping out tax evasion and timely receipt of VAT.
In 2005 the state expects to receive £473.8 million from direct taxation and a further £1.047 billion from indirect taxes such as VAT.
Income from other sources will reach £206.7 million while a £559.2 per cent would come from borrowing.
Concerning the adoption of the euro, the minister said that the government would be carrying out an assessment of the convergence programme it had submitted to the EU last May and would go ahead and submit a reassessed plan covering 2005 to 2008.
The convergence programme was designed to bring the island into line with the European Exchange Mechanism, the precursor to the adoption of the euro.
Countries must spend at least two years in the ERM-2 before joining the Euro zone.
The adoption of the euro as Cyprus’ official currency would stabilise the economy, cut interest rates and bolster exports and tourism, the minister said.
He also noted that the single currency would also dispel Turkish Cypriot objections regarding the currency and the operation of the Central Bank in case of a solution.
