THE 2014 BUDGET, approved by the Council of Ministers on Thursday is an austerity budget, the type the Christofias government obdurately refused to put together despite the desperate need for it as far back as 2011, when Cyprus was excluded from the markets.
There should have been austerity budgets for this year and last year, but a €2.5 billion loan from Russia at the end of 2011 allowed the then government to sweep the glaring fiscal problems under the carpet and carry on the mindless squandering of the taxpayer’s money.
Some cuts were introduced to the 2013 budget, because of the imminent MoU, but the big spending cuts and tax increases will be experienced next year, with the government reducing net spending by 10 per cent. This will save €626 million and there would be cuts in welfare benefits, allowances, overtime pay, public sector wages, pensions, while apart from the Immovable Property Tax, VAT will rise by one percentage point and duty on petrol would increase as well. In other words it would not be only public sector workers who will experience a reduction in their disposable income from next year.
After the president’s pledge not to impose more wage cuts in the public sector, the finance minister decided to freeze almost all appointment in the public sector. Provisions in the MoU for some appointments (one for every four retirements) have been suspended as have replacements of retiring contractual staff. The staff reductions would not be felt if PASYDY finally allows transfers of civil servants from one ministry, or department to another; it has accepted this in principle but in practice little has been done.
The overall picture remains very gloomy, even though the economy would contract by less next year (3.9 per cent compared to the forecasted 8.7 per cent this year). Unemployment is forecasted to be at 19.5 per cent even though this seems particularly optimistic, considering the economy would carry on contracting. Much will depend on the banks halting the continuous withdrawal of deposits, stabilising and gradually offering credit, because too many businesses are on the brink and might not be able to survive for another year in the prevailing conditions.
It does not need to be said that no real funds would be available for development. “We wish we could spend more and borrow to foster growth, but unfortunately we are paying for mistakes of the past,” said finance minister Harris Georgiades. The truth is that government could have had more funds to foster growth, if it cut another five to 10 per cent from public sector wages and used the money for development projects, but, like its predecessor, it chose to keep the public servants, the best-protected workers, happy.
In 2014 there would not be a glimmer of hope, because the Anastasiades government has chosen not to effectively correct the mistakes of the past that Georgiades was complaining about.