No tax breaks before next elections
House Committee on Financial and Budgetary Affairs began the discussion on the 2016 state budget on Monday with Finance Minister Haris Georgiades analysing the state revenues, the situation of the public finances and the fiscal index, adding that there will be no tax breaks before the parliamentary elections in May 2016.
The budget provides for revenues, excluding financial flows, amounting to EUR 5.94 bln, compared with revised revenues of EUR 5.86 bln in 2015, an increase of 1.3%.
The discussion on the state budget will cover the budgets of all ministries and public sector services and will be concluded on November 30 with the participation of the Central Bank Governor Chrystalla Yiorkadji.
Meanwhile, the Finance Ministry said that medium term prospects for the economy are more optimistic than had been anticipated, forecasting that public debt will shrink to below 100% in 2018.
According to the Ministry’s forecast, the growth rate for 2015 will range between 1% and 1.5%, contrary to the Troika’s lower predictions of just 0.5%.
For 2016, the report says GDP change rate will range close to 1.8% compared to 1.4%, while it agrees with the international lenders’ forecast for growth of 2-2.2% in 2017 and 2018.
Referring to the labour market, the Finance Ministry estimates that from 2016 onward unemployment will follow a downward trend at close to 15%, 13.7% in 2017 and in 2018 to 12.4%. At the same time inflation is expected to increase to 0.9% in 2016 due to an expected increase in private demand. For 2017 and 2018 inflation is expected to reach 1.3% and 1.5%, respectively.
Fiscal balance in 2017 is estimated to be in surplus and reach 0.5% as a percentage of GDP, the report said, while the primary balance (excluding expenditure to service the debt) is forecast to also be well out of the red and reach 2.8% of GDP.
In 2018 fiscal balance is expected to reach 1.1% of GDP while primary balance is expected to be at least 3.3% of GDP.
“The better than expected development of the economy, in combination with the gradual restructuring of the banking sector, has contributed to improved confidence,” the report pointed out.
On the banking sector, the Ministry stressed that the most significant challenge continues to be “the very high percentage of non performing loans (NPLs).” It added that a drop in NPLs will be achieved gradually as positive prospects for the Cypriot economy will continue to improve expectations.