Budget surplus in first quarter

The central government budget posted a surplus of CYP 92.1 mln (cash basis) in the first quarter of 2005, compared with a deficit of CYP 22.1 mln in the same period of 2004, according to results published by the Central Bank of Cyprus.

The government its targeting a general government budget deficit (accruals basis ) of 2.9% of GDP in 2005, compared with a deficit of 4.2% of GDP in 2004.

We understand that around CYP 69 mln of revenue in the first quarter came from the tax amnesty which closed at the end of February. The other CYP 50 mln went into the 2004 accounts.

Income tax rose by a strong 13.6% year on year compared with the first quarter of 2004, while VAT rose by 11.3%.

Figures on the expenditure side show that capital expenditure has recovered after a big squeeze in 2005 but current expenditure is rising only moderately.

Expectations of an improvement in the fiscal position was one of the reasons cited by the Central Bank on Friday for cutting interest rates by 50 basis points.