Finance Minister Constantinos Petrides said the 2023 state budget is not a pre-election ploy but a responsible one to navigate the country through turbulent times.
Presenting the budget at the House Finance and Budgetary Affairs Committee on Monday, Petrides said the government did not exploit the budget for pre-election purposes.
He called it “a responsible budget” that aims for recovery, has increased development expenditure by 12%, and maintains healthy finances, respecting future generations.
The 2023 budget will be the government’s last budget as Cyprus is headed to presidential elections in February, and a new government will assume office by March.
Petrides said the budget provides the new government with the tools to face great challenges.
He noted that no cuts were imposed while social expenditure was increased, and cash buffers were generated.
“This budget includes the largest social expenditure in the history of the Republic, includes the largest development spending in Cyprus’ history as well as expenditure for green growth and digitisation.”
On the economy, Petrides said GDP growth by the end of 2022 is expected at 5.7%, surpassing all forecasts.
He argued that the economy was resilient, adding that Cyprus is the only country in the EU that has managed to upgrade its economy.
“For 2023, the growth rate will drop to 3% with a high degree of uncertainty.”
Cyprus’ public debt is expected to continue its downward path from the peak of 115% GDP in 2020, declining to 89.3% in 2022, which would constitute one of the biggest reductions in the EU.
“This is very important for the future so that more upgrades (of Cyprus credit ratings) will emerge, and debt servicing costs would not rise”.
Petrides expects a higher budget surplus of 1.7% of GDP this year but said the government did not aim for high surpluses to avoid social costs.
But he added that this surplus had satisfied capital markets that upgraded Cyprus’ credit ratings.
“According to European indexes, there is a sharp decrease in inequality on the island and social cohesion indicators, despite everything being said by the Opposition.”
He said it would be “highly irresponsible” to propose tax reform with the international uncertainty and inflation.
As for raising the corporate tax to 15%, he said it was a condition to be agreed upon at a European level, something which has not happened.
Referring to the fiscal dangers, he warned of a protracted period of high inflation, the risk of problematic loans increasing but also the immigration issue as it might significantly affect the welfare state long-term.