Cyprus budget deficit hits 3.9% of GDP

The budget deficit in Cyprus in the second quarter of 2005 widened to CYP 76.7 mln, compared with a deficit of CYP 49.1 mln in the second quarter of 2004, amounting to 3.9% of GDP, according to Financial Mirror calculations.

We base our calculations on Statistical Service data dated September 13 which give GDP (at current prices) of CYP 1,977 mln in the second quarter.

The government is aiming for a deficit of 2.9% of GDP for the full year.

However, thanks largely to the tax amnesty that ended in the first quarter of 2005, the budget was still in surplus for the whole January-June 2005 period.

Total revenue amounted to CYP 1,493.5 mln and total expenditure amounted to CYP 1,456.4 mln resulting in a surplus of CYP 37.1 mln. According to the Statistical Service, this amounted to 0.5% of GDP. However, using the GDP data that was published on September 13 (showing first-half current GDP at CYP 3,743.4 mln) results in a higher surplus of 1% of GDP.

Either way, the surplus recorded in the first half of the year is expected to turn into a deficit the second half as departments rush to spend their budgets before the end of the year and as spending ahead of parliamentary elections in 2006 increases.

Revenue up only 0.6%

According to the preliminary data on the General Government accounts for the period April-June 2005, compiled in accordance to E.U concepts and definitions, total revenue amounted to CYP 664.7 mln (an increase of 0.6% in relation to the second quarter of 2004) while total expenditure reached CYP 741.4 mln (4.5% increase).

The main categories of revenue for the period Jan-June 2005 were: taxes on production and imports at CYP 619.7 mln, of which CYP 361.8 mln was VAT (12.1% increase); taxes on income and wealth CYP 303.1 mln (7.7% increase), social contributions CYP 281.2 mln (1.2% increase).

The main categories of expenditure for the first half of 2005 were: compensation of employees CYP 532.5 mln (3.9% increase despite the so-called freeze on wages), and social transfers CYP 419.5 mln (12.9% increase).

Fiona Mullen