Accra:The Cyprus Fiscal Council (CFC) has advised the government to limit operating expenditure while emphasizing investment and social policy in the 2027 State Budget. This recommendation comes as part of the CFC's evaluation of the fiscal strategy, aiming to maintain a budget surplus and reduce public debt in the long term.

According to Cyprus News Agency, the CFC highlights the importance of achieving strategic objectives, such as upgrading infrastructure, promoting digital and green transitions, and supporting vulnerable groups. The general government surplus is expected to reach 3.9% in 2027, with a primary surplus of 5%. Public debt is projected to decrease to 45.2% of GDP by the end of 2027.

The CFC also notes that the tax reform could lead to an 11.7% increase in direct taxes, primarily through corporate tax and the Special Defence Contribution, while income tax on employment and stamp duties are expected to decline. Social contributions are projected to rise by 5.5%.

In terms of expenditure, the 2027 budget includes a 1.2% reduction in the public sector wage bill, influenced by decreased contributions to the occupational pension scheme. Public sector remuneration is set to grow by 4.2% next year, with further increases in the following years.

The CFC points out previous breaches of EU expenditure ceilings but anticipates compliance in 2027. Public sector employment is generally decreasing, except in education, where there is a significant increase. Social benefits are expected to grow by 4.4% annually, and the CFC suggests implementing income criteria for new benefits.

Investment projects have seen low implementation rates historically, with only road expenditures showing notable growth. The CFC emphasizes the importance of project maturity and timely execution, alongside substantial appropriations planned for 2027.

Potential risks to the budget include geopolitical tensions, inflationary pressures, and climate change, which could impact growth and fiscal balances. The CFC recommends reallocating expenditure towards investment and social policy, adopting ambitious energy transition targets, and containing public sector employment and wage bills.

Overall, the CFC stresses the need for binding fiscal frameworks and clear explanations for any deviations from set ceilings.