Cyprus looks to cut deficit to 4.25% of GDP in 2011

The Cyprus government is preparing its 2011 State Budget, which will be focused in reducing the fiscal deficit by EUR 300mln to 4.25% of GDP, through spending cuts, higher taxes and the gradual recovery of the economy.
The Ministry’s of Finance basic scenario for the 2011 State Budget is that the economy will grow by 2.0% compared to 0.5% in 2010 and -1.7% in 2009. A possible improvement in the economy will allow revenue to increase by c. EUR 100mln (arising from direct and indirect taxes), whilst around EUR 70mln would result from imposing new consumption taxes (EUR 35mln from tax on fuels and EUR 35mln from the increase of VAT on medicines and other consumables).
Additionally, as already announced by the Minister of Finance, the government’s intention is to reduce its operating expenses by EUR 70mln in 2011, without excluding the suspension of some development projects which may not be deemed necessary.
In 2009 fiscal deficit reached EUR 1.0bln or 6.1% of GDP, whilst the European Commission requested the reduction of fiscal deficit to 3.0% of GDP or EUR 500mln by 2012. To reach this goal, and consequently for Cyprus to exit EU’s surveillance on excessive deficit, there should be an annual budget adjustment equal to 1.75% of GDP or EUR 300mlnaccording to an analysis by Marfin CLR Research. The State Budget for 2011 is expected to be submitted to the Council of Ministers on 9 September 2010 in order to get its final form and then presented to the House of Representatives for final approval.