Cypriot Finance Minister Charilaos Stavrakis remains adamant that despite the decline in tax revenue, the country will still manage to report a 0.1-0.6% of GDP budget surplus for 2008, or in numerical terms, a surplus of EUR 20 mln to EUR 100 mln.
Public debt meanwhile, is set to drop substantially to 48.5% of GDP in 20008 from 59.7% in 2007 and compared to the EU 27 average of 65.2%, with Stavrakis explaining to the Financial Mirror that the impressive improvement is due to the accounting treatment of sinking funds, as well as the fact that the country is running a budget surplus.
Stavrakis however is worried at the health of state finances, since on the one hand, tax revenue from capital gains taxes is sharply lower as a result of the decline in property prices and activity, while on the other hand, revenue from VAT is up 17%, indicating strong consumer driven activity.
“Consumer consumption cannot keep up at the current pace, which is why I expect that VAT receipts will go back to their ‘normal’ average increase of 7-8%, which is why we need to boost revenue from other sources,” said Stavrakis.
E-government
Stavrakis says one way to improve state finances is to make the economy more competitive, reduce civil servant hiring and place more emphasis on e-government, which improves the level of service, increases efficiency and at the same time is more cost effective.
“80% of state expenditure goes to civil servants pay, which is rising 7-8% annually due to COLA and pay agreements, while 13% goes on the development budget costing the government EUR 1 bln and 7% on operational expenses costing the state some EUR 0.5 bln annually,” says Stavrakis, adding that there is a lot of room for improvement
Source: Financial Mirror
