Budget must meet EU obligations, says minister (updated)

Protecting the economy and safeguarding human-centred sustainable development should be at the forefront of economic policy, Finance Minister Makis Keravnos said on Tuesday while speaking at a forum on the economy organised by Akel.

“We have a responsibility and an obligation to maintain a strong economy and to meet our European obligations, but at the same time to deal with serious social issues,” he said.

To exercise an effective social policy, it is necessary to concurrently implement policies that ensure stable and sustainable growth, within the framework of fiscal discipline and financial stability, the minister added, noting that “this is also the constant government policy”.

Regarding tax reform, the finance minister stressed that the goal is the adoption of a transparent and simplified system, with the minimum possible bureaucracy.

“It must also be encouraging to business and at the same time be socially fair, be within the framework of European standards and aim to reduce tax evasion and tax avoidance,” he added.

He also said that the key tool for the implementation of the government’s development programme is the national Recovery and Resilience plan.

“Through the initiatives it comprises, we aim at significant structural reforms and the expansion of the productive base of the economy, utilising research , innovation, technology and above all, the remarkable human resources of our country, which I consider to be our most important advantage.”

On green taxes, Keravnos said it they expected to significantly contribute towards reaching Cyprus’ green goals within the European Union.

With reference to the draft budget for 2024, which was recently submitted to government, he said that it is a developmental budget with a 12 per cent increase in development expenditures, but also human-centred with a 15 per cent increase in social benefits and at the same time, a surplus budget.

This surplus of 2.2 per cent of GDP, and a primary surplus of 3.6 per cent of GDP, “underlines the responsibility and foresight of the government, as it is a way to deal with any unforeseen negative developments, like the tragedy unfolding in our neighbourhood,” he said.

At the same time, “it allows us to exercise social policy in an environment of great uncertainty, while enabling us to meet our European obligations in terms of fiscal rules, especially reducing the debt ratio to 60 per cent of GDP,” he added.

Keravnos said the economy’s growth rate is forecast to rise to around 2.9 per cent in 2024 compared to a revised forecast of 2.4 per cent growth in 2023 due to the developments. For 2025 and 2026 it is forecast to rise to 3.1 per cent and 3.2 per cent respectively, exceeding the EU average.

He reiterated that the forecasts are accompanied by a large degree of uncertainty, particularly after recent geopolitical developments in the Middle East.

He also said that inflation in 2024 is expected to be limited to 2.5 per cent and then fall even further, adding that “the fiscal surpluses expected to be achieved in the coming years will lead to the further reduction of public debt as a percentage of GDP”.

“We are going through an era defined by constant challenges, both on a global and a national level, and multiple crises” like the pandemic, war, the energy crisis, inflation and extreme weather, that “create huge pressures on the economy and in public finances, constantly creating new support needs for the public, and especially the underprivileged”.

The finance minister stressed that as a small country with limited capabilities and in a state of continued occupation, “we have a responsibility and an obligation to maintain a strong economy and to meet our European obligations, while also dealing with serious social problems”.

On the subject, he mentioned the new government support package, which includes a mixture of horizontal and targeted measures, totaling €325 million, for the period 2023-2026.

“I consider this package to have been welcomed by all political parties as well as by society in general and I also consider any genuine and productive criticisms to be welcome,” he said.

He added however that “it is not a panacea for the multitude of problems facing our public and businesses, especially small ones,” saying that the government means for it to act as a palliative, giving time for results from the implementation of a comprehensive economic policy.

Lastly Keravnos said that the recent double upgrade of the Cypriot economy by Moody’s is a vote of confidence and “makes our economy more attractive for investments while reducing the potential cost of borrowing and promoting quality employment”.