Cyprus must cut back on its spending to save 175 million euros this year in a bid to contain its public deficit at 6.0 percent, the island's finance minister, Charilaos Stavrakis said on Friday.
The European Commission decided to take disciplinary action against Cyprus for exceeding public deficit limits above the EU ceiling of 3 percent of gross domestic product.
"The EU Commission agreed with us that without measures, the deficit would have reached 7 percent…we put in our aim, which was approved…that in the next four years there be a gradual decrease below 3.0 percent," Stavrakis said.
Cyprus had a budget gap of 6.1 percent in 2009, which is expected to rise to 7.1 percent this year.
Presenting the government's economic support package to reporters, Stavrakis said that the state has already saved 105 million euros out of its overall 175 million euro target by cutting operational expenditure in the public sector by 80 million euros in 2010 and the number of state employees by 490 people so far.
"This has happened for the first time in Cyprus's history," he said.
He said the government aims to increase this number to 1000 annually, while ongoing talks between the island's President Demetris Christofias and the head of the public sector workers's union continue on the issue of pay freezes.
Stavrakis said a further 40 million euros in fuel taxes and fuel oil grants would further plug the deficit gap.
The government also proposed to cut child benefits and student funding to those from privileged backgrounds, where family income exceeds 60,000 euros a year.
In April, authorities said they planned to raise low-rated VAT on certain goods and be more aggressive with tax evaders. It also introduced a freeze on public sector recruitments.
Data showed that the deficit for the first quarter of 2010 reached 55 million euros compared to 150 in 2009, while preliminary figures for Jan-April saw the deficit drop to 170 million euros, compared to 236 in the same period last year.
Cyprus remained in recession in the first quarter of 2010, flash statistics showed, but there were signs of a rebound after it fell into recession in 2009, as revenues plummeted in the once thriving property market and tourism sector, having been hit hard by the global economic crisis.
"The first four months of 2010 have seen an improvement in the image of the Cypriot economy's public finances," Stavrakis said.
Tourism accounts for almost 11 percent of the island's GDP.
Its 17.2 billion euro economy, one of the smallest in the euro zone, contracted by 1.7 percent last year.
