Minister of Finance Charilaos Stavrakis has said that banks should also contribute to the efforts of the government to achieve fiscal consolidation.
He also assured that the seasonal increase of total state expenses will be overturned and said that by the end of the year it will be limited to 0%.
Stavrakis was speaking before the House of Representatives’ Committee on Financial and Budgetary Affairs, which debated on the government Bill to impose a special tax on banks (0,095%) for 2011 and 2012. The House Committee debated the issue in the presence of the Governor of the Central Bank of Cyprus Athanasios Orphanides.
The Minister told the Committee that important steps have been taken towards reducing public expenses and explained that the number of public servants has been reduced, while a Bill is pending before the Parliament, which provides for the further reduction of permanent positions in the public sector.
“Of course more structural measures must be taken but right now we believe that banks should also contribute to the efforts to achieve fiscal consolidation”, he went on to note.
Stavrakis said that the Parliament must approve by Thursday the Bill on a special tax on banks, noting that the European Commission will publish by the end of April its economic forecasts and it would be important for Cyprus to have introduced the bill by then.
He recalled that the government has adopted a plan and has a commitment towards the European Commission for fiscal consolidation aiming at limiting fiscal deficit to 4.5% in 2011, to 2.8% in 2012 and 2.5% in 2013.
Three months ago, he went to say, the government had informed the European Commission that it would fulfill its fiscal consolidation goals by reducing state expenses and by enforcing state revenue, like the measure for a special tax on banks.
“This is expected by the European Commission and it is part of its calculations based on which it will issue its spring forecasts”, he went on to say.
Stavrakis said that the Ministry of Finance does not deem as negative the opinion of the European Central Bank (ECB) on Cyprus’ draft laws under consideration regarding the imposition of a special tax on banks and on the setting up of an independent financial stability fund.
He said that the European Central Bank had given a similar opinion in the case of Hungary, which also considered similar measures.
In his statements, the Governor of the Central Bank of Cyprus said that the most important reference in the opinion of the European Central Bank is that it notes that “using the proceeds of any ad hoc taxes imposed on banks for general budgetary purposes would be undesirable to the extent that such taxes would place undue burdens on banks, hampering the provision of credit, with a knock-on effect on growth in the real economy”.
Orphanides added that the Central Bank of Cyprus has proposed a compromise solution so that the draft bill under consideration provides for the creation of a Financial Stability Fund so that after 2013 all revenue from this tax are transferred to the Fund.
“This compromise solution can address the criticism of the European Central Bank”, he pointed out.
Orphanides expressed satisfaction over the decision of the Ministry of Finance to include the establishment of the Fund in its draft law, but said that the Ministry has not yet changed its position as to whether the special tax on banks will be used to close any budget gaps or to transfer the money after two years to the Financial Stability Fund.
Concluding, Orphanides said that Cyprus' bank system is robust. ''Our banks have high rates of capital adequacy and liquidity'', he said.
