The President of the Republic has appealed to the political leadership and the social partners to show self restraint and to join their efforts to help the economy recover, pointing out that the recent agreement on austerity measures between the government and parliamentary parties is a positive sign.
“Economic recovery needs political stability and calm and approval of the proposed 2012 state budget is a decisive step in this direction,” President Demetris Christofias has said, addressing a party congress of the United Democrats, a government coalition party.
The President’s remarks come a day before the House begins a three-day debate on the state budget.
He said that the state has been deprived of significant revenue amounting to 345 million euro annually because the House had not approved government bills on austerity measures.
The President explained that the local economy is not isolated from developments in either Europe or worldwide in financial terms.
“Unfortunately the global financial crisis is deepening, with unexpected results and reversals in a globalised environment where what happens in one country has a fallout on another,” he pointed out, adding that the exposure of the local banks to Greece is such a case.
The government, he said, lays special emphasis in containing unemployment, adding that “a rise in unemployment is our biggest problem.”
He said as part of austerity measures the government has adopted, the number of public servants has dropped, state expenditure has been reduced by 240 m. euro, unemployment benefit for retired civil servants for six months has been abolished and tax evasion has been curtailed through legislation.
The President said that the government has allocated 450 m. in support of the basic sectors of the economy, such as tourism, manufacturing and middle size businesses, in addition to adopting measures to strengthen the fluidity of the Cypriot banks.
Amid the continuing financial crisis and the weak growth of the Cypriot economy, projected at a mere 0.2% GDP in 2012, the government has 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 a freeze 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.
