Cyprus Unveils Deficit Reduction Package

by Lorys Charalambous, Tax-News.com, Cyprus

23 June 2004

Cypriot Finance Minister Makis Kervanos on Monday unveiled a package of new measures designed to reduce the nation’s budget deficit and allow it to adopt the single European currency in 2007, including a series of new levies and charges, improvements to tax collection and a public sector pay freeze.

“A reduction of the deficit to below 3.0% and a declining public debt by the end of 2005 is of primary importance to us,” said Kervanos of the 2003/2007 EU convergence programme that has already been presented to Brussels. He warned that if not checked, the deficit may rise above 7% of gross domestic product in 2004.

As a result of the budgetary measures, the government is intending to raise CYP10 million next year from a levy on mobile telephones, CYP50 million from a tax amnesty in 2005 and a further CYP40 million through the issuing of title deeds. In addition, there is also to be some form of new tax on property sales.

Kervanos hopes that the plan will bring in the extra CYP140 million in revenues needed to reduce the budget deficit to 5.9% of gross domestic product this year and 2.9% in 2005 – bringing it under the EU Growth and Stability Pact’s 3% threshold.

Failure to achieve this would “automatically delay Cyprus's application to enter the Exchange Rate Mechanism and postpone adoption of the euro for an unknown period of time," warned the finance minister

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