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Finance Minister Haris Georghiades said that welfare payment and public expenditure are up by 5.3% and 5.2%, respectively, in the 2015 State Budget narrowly approved by parliament on Tuesday night.
In his first post-Budget comments on Wednesday, Georghiades said that although satisfied with the vote of approval, which will help in the efforts to reform and revive the economy, he has noted the concerns and objections raised during the two-day debate.
“We all agree that our economy continues to face difficulties and challenges. But let me remind you that we inherited a collapsed economy and today it is recovering. We still have long road ahead and we must also rid ourselves of bad practices and the mentality of the past.”
On the criticism that the Budget should have more spending in order to encourage development, the Minister said that “as much as I’d like that a lot, this Budget is limited to the real abilities of the economy. Otherwise, we would have been repeating what had been done in past years, that is the need to raise taxes or the uncontrolled rise in public debt which would hamper, not encourage, our development prospects.”
He said that the increase in welfare and spending was achieved by reducing the public payroll by 3.2% and debt repayment costs by 12.4%.
“Our approach is to create conditions of stability and confidence,” Georghiades said, adding that the aim is to try and soften the burden from the taxes imposed in 2011-2012, repeating earlier comments that “no new taxes will be imposed on the already hard-pressed private sector, households and businesses.”
The Minister said that the government is looking towards a new round of lending from the markets, “but only when the market conditions allow it and after we have achieved further rating upgrades.
A slim majority of 29 MPs of the 56-seat House of Representatives voted through the government’s budget for 2015, with the main focus being on cutbacks, recovery and reform.
Despite harsh criticism from the opposition AKEL, the smaller socialist EDEK and the centre-right DIKO, the former coalition partner, as expected, approve the budget with reservations.
The budget could only pass with the 20 votes from the ruling DISY, the single EVROKO vote and at least five of the eight DIKO deputies. Eventually, all eight DIKO deputies voted in favour.
Independent Zacharias Koulias, who is expected to rejoin the ranks of DIKO after being expelled by former party leader Marios Garoyian, declared earlier that he would vote against the budget.
The main features of the budget are aligned with the obligations under the memorandum of understanding (MoU) with the Troika of international lenders, who are somewhat upset that the package of measures on foreclosures had been held up since October.
AKEL said it voted against the budget because “it is the implementation of the unpopular Troika and government targets”, similar to words from EDEK, the Citizens’ Alliance and the Greens.
DIKO said it wanted some of the terms in the Memorandum with the Troika to be renegotiated.
The budget debate started on Monday with the read-out of the House Finance Committee report, which said that the economic environment remained “difficult” despite the projections of the Ministry of Finance for 2015.
The report acknowledged the positive course of public finances, the reduction of the cost of borrowing and the upgrade of the economy by international rating agencies, as well as the fact that the government should continue the path of reforms.
As to the planned expenditure for 2015, the Committee members noted a weakness in planning for growth and noted that the marginal increase in growth spending by 5.2% was not sufficient to restart the economy.
The state expects revenues of EUR 5.9 bln and expenditure of 6.6 bln, with a modest growth rate of 0.4% predicted for 2015, 1.6% in 2016 and 2% in 2017.
The minister had earlier said that the banking sector was crucial to the economic recovery, but that obstacles remained, such as the delay in the package of insolvency bills, linked to the other bill on foreclosures, which AKEL wanted its implementation delayed by six months and EDEK until January 1.
According to the budget, inflation should reach 0.9% in 2015 and will climb to 1.3% in 2016 and 1.5% in 2017. Unemployment is expected to peak at 17% in 2015 and fall to 15.8% the following year and to 14.4% in 2017.
The main sources of revenue are expected to be direct and indirect taxes, estimated at EUR 4.9 bln in 2015 or 83% of total revenues. The rest concerns sale of goods and services, as well as transfers, estimated at EUR 999 mln.
The government also hopes to generate fresh revenue streams from its privatisation roadmap that will see EUR 1.4 bln raised over the next four years from the sell-off of state assets, such as the telecom and electricity utilities, as well as the Ports Authority, that is expected to be the first to get underway by the end of 2015.
On the state budget’s expenditure side, payroll, pensions and bonuses continue to make up the lion’s share, but will be slightly less next year at EUR 2.5 bln compared to 2.58 bln in 2014.
