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Cyprus News Agency: News in English, 11-12-02

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From: The Cyprus News Agency at <>


  • [01] New austerity measures announced

  • [01] New austerity measures announced

    Financial consolidation measures decided at a meeting in the Presidential Palace aim at reducing fiscal deficit far lower than the target of 2.8% of GDP the state budget provides for, Minister of Finance Kikis Kazamias said.

    As Kazamias pointed out, with the latest measures we display our determination abroad, that we will put all our efforts until the end, to solve our fiscal problems on our own.

    He further noted that these measures provide a convincing answer to the EU that public spending will not increase in the coming two years, in order for Cyprus to focus on expanding its economic growth rate.

    Kazamias was also optimistic that Cyprus will avoid taking refuge at the European Stability Mechanism and noted that effort is being made to finalize the relevant draft bills by December 8.

    The Finance Minister was speaking to the Press, following meeting at the Presidential Palace, chaired by the President of the Republic and attended by political party leaders.

    As he noted, Cyprus obligation towards the EU, apart from approving the state budget for 2012, is to present a convincing medium-term program concerning its public finances.

    Speaking on growth, Kazamias said that outside estimates are not very positive and added that they must be disproved, since an increase in the growth rate by 1% equals further state revenue, worth 200 mln euros.

    He noted, moreover, that the tax collecting capacity of the state needs to be increased, while he added that beating tax evasion comprises the second pillar of the decisions, along with the contribution of private sector workers. The third pillar, Kazamias said, is to focus on growth.

    As the Minister put it, if we resolve our domestic problems we will be better off to deal with and any external risks to our economy.

    Responding to questions, Kazamias explained that some measures will be forwarded to the House of Representatives immediately, to have the draft bills ready by December 8 and submit them to the House, along with the state budget.

    He added that a special committee, chaired by him and attended by party representatives, will discuss further measures, aiming to boost development. These measures, he said, may take more time to develop and may extend to the beginning of next year.

    Asked whether Cyprus is going to avoid the European Stability Mechanism, Kazamias stated he was optimistic. On another question concerning the role of trade unions, the Finance Minster expressed his respect towards the movement and said that the role of trade unions never comes to an end, adding that dialogue with the social partners can not last for too long, especially in present times.

    Amid the continuing financial crisis and the weak growth of the Cypriot economy, projected at a mere 0.2% GDP in 2012, the government introduced a series of austerity measures that would enable Cyprus to meet its medium term commitments to the EU and particularly for a budget deficit of 2.8 GDP in 2012 and a zero deficit by 2014.

    On August 27 the Parliament approved the first fiscal consolidation package with a fiscal impact of 1% GDP or 180 million EUR, while a bill for the increase of VAT rate to 17% from 15%, which would yield an additional 140 million euro to the state coffers, is pending for approval.

    The Cabinet also approved a second fiscal consolidation package, incorporated in the 2012 state budget, which would reduce the budget deficit below the 3 per cent Euro area benchmark (2.8%) in 2012. The package provides for the abolition of 939 vacant positions in the public sector, a 10% reduction of the starting salary of civil servants, the introduction of income criteria for the better targeting of welfare spending such as child allowance and student allowance (100 million EUR).

    On November 18 the Finance Minister introduced a third fiscal consolidation package aiming at restoring Cyprus` credibility in the international markets. The package provides for the freezing of salary increases in the public sector (including COLA) for two years, with a yield of 355 million EUR, a scaled contribution of high earners in the private sector and the introduction of a 0.5% levy on the turnover of companies with local activities for two years.

    According to the EU` new economic governance provisions, Cyprus must take concrete steps for the correction of its public finances. Otherwise a fine of 0.2% GDP will be imposed.

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