The House of Representatives has approved a new set of austerity measures, aiming at further fiscal consolidation.
The new measures were passed amid major dissatisfaction by the public sector workers whose union PASYDY had staged a three hour work stoppage as a reaction to the new measures.
PASYDY has also decided a 12 hour strike on Thursday.
The parliamentarians approved a two-point hike in value added tax (VAT) from 15 to 17 per cent. The increase in VAT will be implemented as of March 1st 2012 instead of January 1st as the government has suggested which is expected to earn a total of 160 million euro by this new measure.
The plenary also voted a two year freeze of salaries in the public sector and the extraordinary contribution of private sector employees based on the scales and rates which apply to civil servants, also for two years.
MPs voted the targeting of the child and student benefits, which will provide an additional 80 million euro as well as the evaluation of various allowances granted to the public servants.
Furthermore, they approved particular bills for the banks, aiming at their further support and consolidation.
The plenary is schedule to resume tomorrow afternoon in order to vote in the state budget.
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.
