Georgiades says expects balanced 2017 budget with less taxes, more spending (Update-1)

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(Adds more minister comment and background information)

By Stelios Orphanides

Finance Minister Harris Georgiades said no extra measures will be necessary to achieve a balanced budget for 2017, in which spending increases by €100m, to €6.15bn.

“On the contrary, we have a situation which allows the gradual and reasonable reduction of tax burdens imposed in the past,” the finance minister told reporters at the presidential palace on Friday, after the cabinet approved the budgetary framework for 2017-2019. “A first relief measure, which we repeatedly said was a priority, is to scrap, by the end of this year, the temporary contribution imposed in 2011, which burdens all workers, both in the private and in the public sector. It’s a definite decision, a significant break worth about €80m”.

A day after he revised this year’s growth forecast upwards from 1.5 per cent, Georgiades said he also briefed the cabinet on the 2.6 per cent growth rate in the first quarter reported on Friday by Eurostat, which is based on a flash estimate.

“A growth rate of 2.2 per cent is forecast (for 2016) by the fiscal policy framework approved by the cabinet today, a significant acceleration of growth which seems, from the first estimate for the first quarter, that it is a fully attainable objective,” the minister said and added that the economy is expected to expand 2.5 per cent next year. “The real economy is recovering and the efforts and sacrifices of our fellow citizens are paying off and we therefore need to continue this effort to strengthen this positive prospect”.

“All individual investment (and) consumption indicators record a significant increase,” he said.

The Cypriot economy, which emerged from a prolonged recession last year when it grew 1.6 per cent, is expected to continue growing 2.5 per cent every year beyond 2017, according to the budgetary framework. This year’s unemployment rate is expected to drop to 13.5 per cent before it shifts towards 12.5 per cent in 2017, 11.5 per cent in 2018, and 10 per cent in 2019.

Also according to the framework, the government is projected to generate a fiscal deficit of 0.5 per cent of the economy next year, slightly wider than the 0.4 per cent budget shortfall expected in 2016. The deficit is expected fall to 0.2 per cent of gross domestic product in 2018, before it turns into a 0.4 per cent surplus the following year.

The government is expected to generate a primary surplus of 1.9 per cent of the economy, or €353m next year, which will widen to 2.3 per cent in 2018, or €446m, and to €3 per cent in 2019, or €603m, the finance ministry said. In 2016, the primary surplus, which is the difference between total revenue and total expenditure excluding interest payments on government debt, is expected to be 2.2 per cent, or €394m, compared to 18 per cent and €316m last year.

Public debt, which peaked last year at 108.9 per cent of economic output is expected to drop to 101.7 per cent next year, from 105.6 per cent in 2016, according to the framework. In 2018, government debt is projected to drop to 97.7 per cent, below the 100 per cent mark for the first time since 2013, before further dropping to 90.5 per cent in 2019.

The finance minister, who served until 2013 as a member of the parliament with DISY, dismissed criticism by the opposition and in particular by Cyprus’s communist party, AKEL.

While AKEL was in power, the economy “plunged into a deep recession, and the unemployment quadrupled and they pretended not to have seen or heard anything,” he said. “I am not surprised by the fact that they cannot see that they efforts of our fellow citizens are paying off and that the situation has started to improve”.

Georgiades’s comments are likely to be in response to comments made earlier by Pampos Papageorgiou, an AKEL lawmaker who said that jobs statistics are not reflected on economic growth.

“We will have true growth in Cyprus when the economy will demonstrate a real increase in jobs,” Papageorgiou said according to the Cyprus News Agency. “Nothing like that is happening today. Growth registered today in Cyprus is mostly, if not fully, attributed to deflation”.

According to the finance ministry, the harmonised consumer price index, which dropped 1.5 per cent last year, is expected to drop 0.7 per cent this year before rising 0.5 per cent in 2017. Employment which rose 0.9 per cent in 2015 is expected to rise 1.2 per cent this year.

“They cannot realise how important it is to remain focused on this effort of creating a stable, positive prospect for our economy,” the finance minister commented.

“Rating companies have clearly indicated what they are expecting from us in order to further upgrade our credit rating,” Georgiades said. “In short, they want us to remain serious even after the completion of the adjustment programme”.

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