Cyprus Fiscal Council expressed concern over the Finance Ministry’s over-optimistic projections which the budget and expenditure ceilings are based on, the Council Chairman Demetris Georgiades has said.
Speaking to a press conference for the presentation of the Council’s autumn report on Wednesday, Georgiades also expressed concern over the government’s tax reductions without implementing mitigating measures.
Georgiades pointed out that the European Commission is expressing concerns over the deterioration of Cyprus’ structural deficit (the deficit without cyclical adjustments and one-off developments) projected to deteriorate from 0.4% of GDP in 2016 to -1.0% in 2017, stressing that if this is not corrected the government will be called on to take additional fiscal measures.
The Council’s remark come after the government 2017 state budget and the 2017-2019 Medium Term Framework that includes upgraded growth provisions in the region of 2.8%.
“If we build our budget on over-optimistic projections which may be proven false the damage will be much more worse than the benefit we would have if we done the opposite, that is, to build our budget on more conservative projections,” he said.
The Fiscal Council Chairman pointed out is these projections are not realised leading to lower revenue the government may be called to implement spending cut or even to enter a new economic adjustment programme.
“For this reason we call on the government not to rush and upgrade its expenditure ceilings or to proceed with more tax break or taxation reductions,” he stressed.
Immovable property tax
The 2017 state budget provides for the abolition of the immovable property tax as well as the termination of the temporary voluntary contribution.
“We are concerned over some measures which show fiscal easing. If offsetting measures were taken we would have no reason to intervene. From the minute no offsetting measures were taken this is worrisome,” he noted.
If over-optimistic projections continue in the long-term and the favourable environment continue there could be fiscal derailment which could not over rule a second memorandum.
The Council also expressed concerns over the delay in the reduction of public debt, noting due to the extremely high debt, Cyprus would not be in place to tackle the repercussions of a possible new financial crisis.
“One would expect that if the Finance Ministry expects higher growth rates the debt should be reduced in a faster pace. Sadly we don`t see this,” he went on to say.
Referring to the talks over a settlement to the Cyprus problem, Georgiades said the Council is of the view that the two sides should achieve fiscal adjustment before a settlement, noting that if this is not possible a mechanism ensuring this adjustment should be agreed.
Source: CNA
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