Cypriot Minister of Finance Kikis Kazamias handed over the 2012 state budget to the President of the House of Representatives.
The state budget aims at reducing budget deficit to 2.8% of GDP, below the Eurozone benchmark of 3%, while it features cuts in all sectors of state expenditure.
However, as the Finance Ministry notes, the achievement of the 2.8% target is under the condition of the approval of a government bill for a 2% increase to the Value Added Tax rate, currently at 15% submitted to the parliament, as well as an estimated 10% increase in state revenues, compared with 1% in 2011.
Amid adverse financial conditions, the Finance Ministry revised its earlier projections for a 1.5% growth to 0.2% in 2011, as well as a 2.8% budget deficit instead of 2.3%.
“The budget of the coming year obtains particular importance due to the difficult fiscal period,“ the Finance Ministry states in a press release, adding that the deficit is the main problem the Cypriot economy is facing today.
Public debt is projected to increase by 560 million euro in absolute numbers, reaching 12.48 billion euro or 66.6% of GDP, compared to 11.89 billion or 65.5% GDP. According to the Finance Ministry, the public debt will embark on a downward course by 2013 declining to 66.5% and to 65.7% in 2014.
Revenues, excluding loans, are estimated at 6.22 billion compared to 5.64 billion in 2011, whereas expenditure, excluding loans, are estimated at 7.536 down by 6% compared with 8.01 billion of 2011.
State revenues as a percentage of GDP are expected to reach 32.9% compared with 31.1% in 2011.
The rise in revenues is attributed mainly in taxation income (both direct and indirect taxes), estimated at 5.46 billion, marking a 10.9% increase or 28.3% GDP.
According to the Ministry, this increase is due to state income from marginal economic growth as well as the tax increases approved by the Parliament on August 26.
On the other hand, expenditure are reduced due to cuts across the scale.
Public sector wages, the highest state expenditure, are estimated at 2.82 billion, marking a 3% rise compared to 2.74 billion in 2011. According to the Ministry, state wages increase only by 0.9% due to the abolition of vacant job positions, while if the non-payment of Cost of Living Allowance for the first half of 2012 is taken into account state salaries record a reduction of 1.6%.
Social transfers decline by 10.6% reaching 2.25 billion euro compared with 2.52 billion in 2011, mainly due to the targeting of social benefits which are now limited to 1.11 billion euro, compared with 1.30 billion in 2011, recording a reduction of 14.7%.
Operational expenditures mark a 10.9% reaching 1.13 billion compared with 1.27 billion in 2011.
Development expenditure decline by 19% reaching 972.5 million compared with 1.20 billion in 2011, as big development projects have been completed or are expected to complete within 2011.
Unemployment is expected to deteriorate further reaching 7.5% in 2012 from 7.3% in 2011, given that the slow economic growth, while inflation is projected to decline to 3.0% in 2012 from 3.5% estimated for 2011.
