Cyprus has made swingeing cuts in its 2011 budget but needs to find an extra €150 million to reach an EU-imposed deficit target of 4.5 per cent of GDP, the finance minister said on Friday.
Charilaos Stavrakis gave a budget analysis to argue that the numbers add up in what he has described as the most critical budget in recent years.
Next year’s state budget will fall short of getting the fiscal deficit down to a Brussels-required 4.5 per cent in 2011, with provisions so far reducing it to 5.4 per cent.
The International Monetary Fund calculates the deficit will be 5.6 per cent, which would mean a shortfall of €180 million, said Mr Stavrakis, insisting that he was comfortable with the government estimate.
There are around a dozen possible revenue-raising measures being mulled, and the government is seeking cross-party support to secure the additional funds.
The minister refused to specify what those measures are, but press reports have mentioned a number of possible scenarios.
Most significant would be the introduction of VAT on food and pharmaceuticals, not now applied, and which estimates say would raise some €60 million. This is mandated by the European Union, but must still be approved by Parliament.
Other, voluntary, measures could include an increase in tax on cigarettes, an additional tax on banks, hiking the defence levy, raising water rates and increasing the tax on large property holdings.
“The most important measure we have taken is reducing budgetary spending, and we think the political parties will respond positively in helping us close the gap,” Mr Stavrakis told reporters.
He said the data so far suggest that Cyprus will contain its deficit to around six per cent for 2010, almost unchanged from 6.1 per cent in 2009.
Cyprus has made a commitment to get its deficit down to below the EU ceiling of three percent by 2012.
Total expenditure in the 2011 budget is set at €8.02 billion against estimated revenues of €5.97 billion.
Spending growth has been set to only 1.1 per cent, the lowest in 35 years.
Operating costs will dip by three per cent and revenue is expected to rise by 4.7 per cent.
According to ministry predictions, the economy will grow 1.5 per cent next year from 0.5 per cent in 2010 following an unprecedented recession in 2009.
Next year unemployment is expected to dip to 6.5 per cent from seven per cent, while inflation should hover at near three per cent, up from 2.5 per cent.
The budget must still be approved by Parliament.