Cyprus’ Finance Minister defends budget targets and methodology

Cyprus’ Finance Minister Harris Georgiades has defended the structural size of the deficit targets contained in the 2017 state budget, as well as the methodology used in the text of the 2017 Cyprus Budgetary Plan, in his letter sent to the European Commission as part of the European semester consultation.

The letter, which is dated October 27, 2016, is publicly accessible on the website of Directorate General of Economic and Financial Affairs of the European Commission and is addressed to the Vice EC President Valdis Dombrovskis and Commissioner of Finance Pierre Moskovici. It is practically a response to an earlier letter of the two, which included a “skewed”, according to the ministry, assessment on the structural deficit for 2017 for -2%. Structural deficit is defined as the overall budget deficit minus its cyclical characteristics.

In the letter, the Finance Minister said: “I would also like to bring to your attention the complete lack of transparency on the Commissions side with respect to the procedures and calculations performed in order to arrive to the forecasts presented in your letter and which hampers the whole process of national ownership. “

The Minister noted that Cyprus lowered its headline deficit in 2013 from -4.9% to -0.2% for 2014 and 2015 and forecasts a deficit of -0.3% for 2016, while the country retains a primary surplus from 2014, currently at 2.3% for 2016.

According to the letter, the minister points out that these figures show that the Cypriot economy has consistently outperformed the budgetary targets, mainly because of the efforts and determination of the Cypriot authorities, having executed one front loaded reduction of public expenditure by 14.5% cumulatively from 2012 to 2014.

Harris Georgiades notes also that the European Commission foresaw a deficit of 5.7% for 2015, diverging from the actual result by 5.5 points. He also defends the budgetary target of -0.6% nominal deficit in 2017 with a primary surplus of 2%, which “does not constitute a deviation from prudent fiscal stance, despite the abolition of property tax and ending the tax on public and private sector wages together account for 0.7% of GDP”.

The Minister says that all this is happening in the agreed program with partners, while state revenue from properties will increased anyway, due to market improvement and while the government has agreed to freeze public sector hiring for a further year. Ultimately, the minister refers to a structural surplus of 0.4% in 2016 and -1% in 2017, attributing any divergence, to the ECs estimates for the actual growth. The minister says that if the European Commission claims were factual, then it would mean that in 2017 there will be deterioration in the deficit by 3 points “something that is not plausible”.

Finally, according to the letter, the Finance Minister rejects the underlaying argument of the European Commission that the economy is overheating, |something that is not justified by the fundamentals of the labour and economic output”, putting into question the ECs methodology.

Source: Cyprus News Agency.