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Finance Minister Prepares Package of New Austerity Measures

cyprus economyFinance Minister Vassos Shiarly said he has prepared a new package of austerity measures to keep the deficit at 2.7 percent of GDP, or 500 million euros per year.

The EU expects Cyprus to respect its deficit limits of below three percent of GDP, which was set by the Maastricht Treaty signed when the island joined the EU in 2004, said the minister in comments to state radio.

By April 20th, he expects to have a better picture of where the deficit stands, and if necessary, he will send the measures to Parliament where they will be quickly approved, said Shiarly. Earlier this year, Cyprus was flagged as one of the vulnerable member states by the European Commission's Directorate for Finance and Economic Affairs.

In December, the House of Representatives approved a second package of cost-cuts, including freezing the Cost of Living Allowance (CoLA) and state employee salaries for two years.

Only one bill was postponed, that of raising the retirement age to 64. Trade unions reacted strongly against the package, and there were a number of strikes held by air traffic controllers and teachers.

Other measures in the package included:

-A temporary contribution from private employees who earn more than 2,500 euros per month that will be shared equally by the employee and employer.

-A rise in tax on dividends from 17 percent to 20 percent.

-Reviewing property taxes.

-VAT raised from 15 to 17 percent.

-Savings from social benefits amounting to 200 million euros.

-Combating tax evasion by taxing loans taken by directors of companies and their families, and by withholding salaries for which no regular contributions were made to the Social Insurance Fund.

-Reviewing various financial allowances in the public sector with a view to removing or modifying them.

-Taking steps to support growth such as strengthening small and medium enterprises in cooperation with the European Investment Bank.

-Provide tax incentives for investing profits in development projects and automation.

-Establishing a committee with the Ministry of Finance and political parties related to reducing the operating costs of the public sector and reviewing the contribution from wealthy individuals.

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