Balancing the government’s books for 2015 meansno new taxes or cutbacks in the coming year, Finance minister Harris Georgiades said yesterday.

“Our forecasts are conservative and realistic… we shall safely remain within our targets, without the need arising for new taxes or new cutbacks,” the economy chief told MPs.

“2015 will be a year of economic recovery, reform and change,” Georgiades said, but cautioned that serious challenges remained, such as improving performance in the public sector, boosting the economy’s competitiveness and, last but not least, taming the huge private debt.

In his budget speech before parliament, Georgiades said the administration has managed to rein in a previously runaway debt. The fiscal deficit in 2015 is expected to drop below 3% of GDP, the EU’s excessive deficit threshold, while the state would register a small primary surplus meaning no new debt created.

This cushion allowed for an extra €60m in government spending compared to last year.

Highlighting the positive, the minister referred to the government’s borrowing in 2014 from the markets for the first time in three years, the banks’ clean bill of health in the recent EU-wide asset stress tests, and the fact that the Cooperatives were found to be adequately capitalised and would thus not require to tap a €1bn “buffer,” meaning this amount would not burden the national debt.

In a departure from past practice, Georgiades said, when the civil service grew unchecked and public sector salaries rose automatically, the current administration believes small government, far from hindering growth, encourages it.

Τhe Anastasiades administration aspires to become the first government in the history of the Republic that, on serving out its term, will “deliver a smaller civil service, one which is rationally structured and more efficient,” he said.

Despite the financial meltdown, the minister observed, the Cyprus economy has proved resilient, thanks to key areas such as tourism, financial services and shipping.

“That is why safeguarding our tax regime and tax stability is of paramount importance, because it is the main pillar for a broader effort to create a climate favourable for business and investment.”

“We had to take tough decisions last year,” said Georgiades. “We resolved that this state must henceforth function within its means, without the need to constantly burden households and businesses with new taxes and without inflating public debt in a way that stumps growth and impairs future generations.”

“The situation today is far better than that inherited by this administration. We had an economy on the verge of collapse, but today the economy is on the rebound.

“That said, we are vigilant and we are closely monitoring developments abroad which might impact us,” he noted. On the joblessness rate, Georgiades conceded it remained “unacceptably” high, despite dipping for the first time in three years and to pre-bailout levels. But he also warned that complacency would be the country’s undoing.

“Despite the progress made, we still have a long way to go. We need to dare and overcome hang-ups and dogmatisms in relation to privatisations,” he told MPs.

“If history teaches us anything, it is the fate of Eurocypria and the very difficult situation in which Cyprus Airways now finds itself,” he noted.

“Privatisations are carried out in a targeted way, and at the right time… can first and foremost constitute a structural change that will bring foreign investments and boost competitiveness in important sectors of the economy, such as telecoms and the ports.”

On the banking sector, Georgiades said that all domestic capital restrictions have been lifted, and work is underway to lift the remaining restrictions on the transfer of capital abroad.

Non-performing loans remained the single highest challenge for the banks, the minister noted, adding that coming changes in the restructuring of loans would help alleviate this problem.

The budget debate at the plenum starts on Monday with the remarks of the party leaders. Discussion will continue into Tuesday, when the parties are expected to vote on amendments and flag as blocked certain budget line items.

Final voting on the budget is expected to last well into Tuesday evening. The budget isexpected to pass thanks to the combined votes of ruling DISY, DIKO and the European Party.

Source: Cyprus Mail