Cyprus Mail
Business Cyprus

First post-bailout budget wrapped up

By Elias Hazou

THE 2014 budget, passed by the House last night, features cutbacks across the board as an effectively broke state tightens the belt to meet the debt targets of an international rescue package.

The budget – the first since Cyprus was bailed out by international lenders – was trimmed by 10 per cent compared to 2013, with expenditures (excluding cash flows and interest payments) coming to €5.6bn.

On the revenues side of the balance sheet, the government expects to raise €6.6bn (excluding cash flows), compared to €7bn in 2013, a drop of 5.5 per cent.

Next year is forecast to be the toughest yet, with the economy shrinking by 3.9 per cent, and the jobless rate rising to a staggering 19.5 per cent.

Meanwhile the public deficit will come to 5.4 per cent of Gross Domestic Product (GDP). The number to watch is the debt to GDP ratio, which for 2014 shoots up to 123 per cent, compared to 114 per cent this year.

And expenditures on servicing the public debt are calculated to jump to €782m, an increase of 13 per cent on 2013.

The civil service payroll, the largest drain on public finances, is to be reduced by 1.5 per cent overall. In 2014 the state will spend €2.563bn on civil servants’ salaries, compared to €2.605bn this year.

The first of ‘fiscal discipline’ budgets until 2016 – the end of the bailout programme – sees cuts to welfare spending, to be slashed to €836m from €962m (minus 13 per cent).

Revenues from direct taxation are projected to reach €2bn, an increase of 4.4 per cent on 2013. Meanwhile the budget provides for additional remuneration cutbacks in the broader public sector, pension contributions by certain categories of civil servants, and an increase in the fuel consumption tax, among others.

Additional savings – though not major in absolute terms – will be generated after a last-minute agreement yesterday between the government and the main civil servants union PASYDY. Under the deal – incorporated into the budget – the shift allowance for public sector workers employed on a shift system (nurses, civil aviation, electricity technicians) are to be trimmed by an additional 10 per cent, over and above a 15 per cent reduction enforced this year. It also provides for an extra 15 per cent cut to the nightshift allowance.

Overtime in the public sector will not be paid for work on weekdays, while the overtime rate for working Sundays is slashed from 2.0 to 1.3 times.

As widely expected, ruling DISY, DIKO and the European Party were in favour of the budget, joined by independent MP Zacharias Koulias. AKEL, the Greens and the Citizens’ Alliance voted against, while socialists EDEK abstained. The final tally stood at 30 in favour, 20 against and four abstentions.

“This is a budget based on the counter-intuitive logic that the solution to the problems of the economy lies in more austerity,” AKEL MP Stavros Evagorou said in remarks before the plenum.

He added: “Austerity means deeper recession, and deeper recession calls for – according to the recipe of the memorandum – even more austerity.”

A combination of deficit spending by the previous administration, and massive losses incurred by Cypriot banks due to the Greek debt crisis, led to the island’s exclusion from international markets and necessitated a €10bn bailout in March of this year.

In 2008, when AKEL came to power, the public deficit was €450m, but soared to €1.357bn the following year, then flying off the charts to €2.295bn in 2010.

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