Ministries given budget ceiling in new fiscal policy

Government ministries will no longer be able to determine their yearly budget on their own, as the Anastasiades administration has decided to put a ceiling on amounts allocated to each ministry prior to the budget planning stage.

Finance Minister Harris Georgiades said after a cabinet meeting that this is part of the government’s fiscal strategy which is the general framework in which individual policies and development plans will be promoted in all policy areas and ministries.

“We now have a budget preparation process in each ministry so that in September we have the budget ready and put to the Parliament,” said the minister.

Georgiades said that the process involves the government calculating revenues “and therefore how much you have to spend, how much you allocate to each Ministry who then plan their budget accordingly,” he said, adding that this system of simple logic contributes so that “we are safely within the limits of a balanced budget”.

He added that in fact, this strategy generates small surpluses. “We spend what we collect. Nothing more, in order not to create ‘holes’ and deficits,” commented the Finance Minister.

The change essentially means that ministries prior to drawing up and submitting their budgets will be given a ceiling by the Finance Ministry.

Sources at the independent watchdog Fiscal Council confirmed to the Financial Mirror that this is done with the aim of bringing about discipline in the ministries’ finances.

The source added that, “they will be forced to sit down and plan their budget more wisely. Also, with this measure, budgets must be project-based, taking in consideration the true needs of a given ministry”. If budgets submitted are below the ceiling, then these budgets will be automatically approved, the source explained.

However, ministries will have some flexibility in going above the limit. As explained, although the Finance Ministry would want to keep a tight leash on ministries’ budgets, they will be able to apply for more funding as long as they do not break the 3% deficit rule set by the Maastricht Treaty.

Furthermore, any expansion must not be at the expense of the government’s MediumTerm Objectives agreed with the EU. These objectives foresee that a member-state’s debt must not exceed 60% of GDP, must reduce the debt within the agreed annual percentage, and to be expected to be in a position to reduce it even further in the following year according to estimations made. Sanctions are foreseen for any member state which does not comply.

In order not be sanctioned by the EU, a member-state must comply with at least one of the above goals.

“The real question of course is how binding these rules are. There are countries such as Italy which have not been complying for years and have not been sanctioned”, commented the Fiscal Council source.

Even the EU is considering changing these rules.

“They are playing with the idea that an elected government should put forward a budget for the whole term,” the source added.