Cyprus plans to achieve a balanced budget by 2004 through better control over public spending and tax reform in its preparation for EU membership, its finance minister said on Wednesday, May 30.
A fiscal consolidation game plan was submitted to the European Union last week and will be officially presented at an EU meeting in Sweden at the end of June, Finance Minister Takis Clerides told Reuters.
"We have set certain targets on economic indicators and how to achieve these targets which will bring us in line, if we are not already, with the economic criteria set by the EU. It covers us up to 2004," he said.
The position of Clerides, who has been finance minister for about two years, will be unaffected by weekend parliamentary elections which saw a narrow win for moderate Communists as Cyprus operates a presidential system of government.
He said a balanced budget was not an EU requirement, but a fiscal deficit of 3.0 percent of GDP or below was. Cyprus met the fiscal condition last year and now has a shortfall of between 2.7 and 2.8 percent.
Fiscal measures, which will be taken to meet a balanced budget, include bringing Value Added Tax (VAT) and other indirect taxes up to EU norms, corporate tax reform, and additional controls over the rate of increase of public consumer spending, the Finance Ministry said in a statement.
Implementation of the roadmap will be monitored by the EU's Directorate General for Economic and Financial Affairs.
The budget passed by parliament this year produced a deficit of 841 million pounds ($1.24 billion), up from 660 million pounds in 2000. The island is expected to join Europe in the next wave of enlargement after 2002.
VAT is now 10 percent in Cyprus opposed to the EU norm of a 15 percent minimum. It also has a zero coefficient on many foodstuffs and children’s' items, compared to the lowest rate of five percent in the EU.
Corporate tax reforms in the pipeline include phasing out present discrepancies in the lower rates offshore companies pay opposed to domestic ones. Offshore companies are charged a flat 4.25 percent rate compared with 20 or 25 percent paid by local firms. Cyprus has made a commitment to the OECD to iron out the imbalance by 2005. ― (Reuters, Nicosia)
© Reuters 2001
© 2001 Mena Report (www.menareport.com)