Cyprus Mail
Opinion

Our View: The government has become complacent and much less prudent

File photo: Head of the Fiscal Council Demetris Georgiades (L)

INDEPENDENT state officials, understandably, are trusted more by the public than politicians. This is because of their status – an independent state official, in contrast to a politician, cannot be removed from his or her position once appointed and therefore has no need to pander to interest groups for votes, make shady deals with other politicians or engage in shabby wheeler-dealing. These officials are untouchable, which is a good thing as they are allowed to operate independently of the political party system.

Last year the attorney-general exchanged harsh words in public with the president accusing him of interfering in justice, while the auditor-general has clashed with government ministers more than once. Both emerged from these public spats with their public approval and standing enhanced. Their willingness to stand up to the government and defend their independence has earned them public respect while their utterances are deemed authoritative, at a time that politicians have very little credibility.

Not all independent officials command the same level of public attention as the above-mentioned pair, probably because they do not deal with corruption, graft and crime and their pronouncements are not deemed as newsworthy. For instance, next to no attention was paid to the stark warnings about the state budget for 2017, made 10 days ago by the President of the Fiscal Council Demetris Georgiades, when he was presenting the council’s 2016 report. Yet his warnings were motivated exclusively by his concern for the economy and had nothing to do with winning votes or presidential elections.

Georgiades criticised the finance ministry’s budget for 2017 because it was based on “over-optimistic forecasts” which were not guaranteed. He felt the reduction of tax revenues, without any measures to counter these were a risk because the “over-optimistic forecasts” might not materialise in which case the fiscal deficit would widen, raising the need for new spending cuts. “If we build our budget on over-optimistic forecasts that prove wrong, then the damage we would have done would be much worse than the benefit we would lose if we did the opposite, built a budget on more pessimistic forecasts,” he said.

There were many factors that could prove the forecasts wrong – there could be another financial crisis, the instability in our region might increase, or there might be greater stability in which case the foreigners may return to rival tourist destinations. In such a case the government would be unable to cover its spending and need to engage in cuts, he said, without ruling out the need to enter another assistance programme.

Even more damning was his observation that the reduction of the public debt was being delayed inexplicably. When there were positive rates of growth the debt should be reduced. As the government was forecasting higher rates of growth it should also have speeded up the rate of reduction of the public debt, something the government had failed to do. Instead it had increased spending with the budget deficit gradually rising. In 2015 there was a healthy surplus of 1.5 percent, this year there would be a deficit of 0.1 per cent while in 2017 it would rise 0.6 per cent.

The 2017 budget, which finance minister Harris Georgiades insisted was “prudent”, caused European Commissioners Pierre Moscovici (economic and financial affairs) and Valdis Dombrovskis (economic stability) to write to the government and warn that it provided for a deterioration of the net structural position. The letter signed by both said “we are writing to consult you on the reasons why Cyprus plans a change in the structural balance in 2017 which well below the requirements of the preventive arm of the stability and growth pact.”

Angered by the letter, the finance minister wrote back to the Commissioners claiming that he would not deviate from the prudent fiscal path, while noting that Cyprus was a top performer among EU member-states with regard to fiscal consolidation. It was a rather weak response and the comparison with other member-state meaningless, considering Cyprus had just exited a three-year assistance programme. As for his assertion that the 2017 budget bill “extends the freeze on public sector hiring for yet another year,” it blatantly misleading, considering the government had just hired 3,000 professional soldiers.

The reality is that the government has become complacent and much less prudent than it had been in the past despite the minister not wanting to admit it. Presidential elections are less than 18 months away and 2017 budget almost certainly took this into account. This is why we should heed the warnings of the president of the Fiscal Council, who as an independent official, speaks much more authoritatively and without an agenda about the economy than any politician of a government with its sight set on elections; his view is also shared by the two European Commissioners dealing with economic affairs. Demetris Georgiades is an independent state official we cannot afford to ignore even if he does not resort to the attention-grabbing tricks of some of his counterparts.



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