The Minister of Finance presented the main directions of economic policy and the government's programme before Parliament today, Constantinos Petrides, which are reflected in the proposed State Budget for 2023, as well as in the three-year fiscal framework 2023-2025.
"I would like to express before the House of Representatives my sincere thanks for the constructive cooperation, over the years, with all parliamentary parties without exception," the Minister said.
Then, through his speech, he referred to "a period in which the course of the global economy is changing, marking the beginning of a very difficult era in which we are called upon to correct our own mistakes as in the past, but also to respond to international challenges, characterized the timing of the submission of the last budget of this Government".
The Minister's speech in Parliament:
The 2023 Budget is the 10th and last Budget submitted by the present Government.
A Budget that closes a ten-year course, starting in 2013. A difficult starting point since its main facts were.
[*]The banking crisis and the bankruptcy of the state which put even our existence in the Euro and the European Union in question.
[*]The situation in the banking sector which continued even after the haircut to pose a threat to both the depositor and the taxpayer.
[*]The restrictions on capital movements due to the massive outflow of deposits from the banks. I personally remember counting the outflows from the banks every day and calculating how long the remaining deposits would last before another collapse. Before total catastrophe.
[/LIST]
Those were the days when we counted the stocks of medicine, fuel, essentials knowing that we were counting days before they were exhausted and then there would be no more stocks to consume with social unrest being inevitable.
There was the recession, the plummeting wages of workers, the social groceries and unemployment of 17%. One in five.
It was much more the initial refusal of the majority of the political world to correctly diagnose the developments in the economy, and to unknowingly seek obvious but utopian and unattainable solutions.
Despite the difficulties and adverse conditions we have received and been called upon to face, despite the three successive crises we have experienced and continue to experience, we are today presenting a balanced Budget and, most importantly, delivering a healthy and robust economy.
An economy fully integrated and at the core of the Eurozone. With high growth rates, low unemployment, fiscally balanced and public debt below 90% of GDP, and indeed on a steady downward trend. An economy upgraded by the rating agencies and with strong growth prospects.
Our latest Budget is presented at a time when the global economy is changing course. It is changing, marking the beginning of a very difficult time for the global economy. A time when we are not just called upon to correct our own mistakes as in the past, but to respond to international challenges. An era which, starting with a new exogenous crisis and climate change, will, in my opinion, have the following characteristics in the coming years.
- Geopolitical instability with major consequences for the concentration of production. It marks the beginning of de-globalization with security playing a more decisive role in the concentration of capital and investment than cheap labour has so far.
- The end of cheap money and low interest rates.
- The end of the era of cheap energy products.
- The end of the era of cheap energy products.
- Drastic shifts in the labour market.
- A tough attitude of the markets, with the sustainability of public finances playing a more prominent role than in the past.
This is precisely why we have adjusted the Budget before you accordingly. It is a Budget that has all those tools with which the Cypriot economy will be able to effectively face the major challenges of the new era in the economy.
Despite the fiscal consequences that the pandemic crises and Russia's invasion of Ukraine have created in the economy, despite the uncertainty and challenges, through the proposed Budget, among other things, the implementation of important projects is sought, which are expected to make a significant contribution to the economic development of the country and, by extension, to the development of the economy. More specifically. The social safety net is not comparable to the past. It has been significantly expanded, through the introduction of the EEO and the GES, but also through the granting of targeted benefits. Social welfare appropriations amount to €760.5 million and show an increase of 0.4% compared to the 2022 Budget but 21% compared to the 2018 Budget.
[*]Operating expenditure increases by about 15%. The increase is mainly due to increases in the prices of both raw materials and most goods and services, including increases in the prices of energy products and problems in supply chains. Inflation is a phenomenon that also seriously affects public finances as the state is the largest consumer in the economy.
[*] Expenditure on servicing public debt (interest and loan repayments) is €500 million lower than last year. As a result of good public debt management. The easy solution of deficits and excessive borrowing, which deprives our fellow citizens and future generations of important resources for the benefit of creditors, is not a solution for us. On the contrary. Despite the financial crisis, through prudent debt management policies, we have created room for manoeuvre. Margins that are currently being used to provide targeted support to households and businesses to counter the effects of inflation, with the amount of support reaching more than €400 million by 2022.
[/LIST]
Our planning is based on realistic and conservative macroeconomic projections. Specifically. The economy grew at a rate of 5.5% in Q3 2022, compared to the corresponding quarter of 2021, which is the highest among EU member states and more than double the average for both the Eurozone and the EU, estimated at 2.1% and 2.4%, respectively.
When we stated months ago that the solution to the challenges is growth, it was not a slogan.
When we stated months ago that the solution to the challenges is growth, it was not a slogan. We meant it! And with our policies we made it a reality. We contradicted not only the Cassandras at home who insisted that we were going into recession, but also the EU's own forecasts of 2.3% growth.
In the medium term, the economy's growth rate, in real terms, will slow down to around 3% in 2023, and is expected to rise to 3.3% in 2024 and 3.2% in 2025.
In the medium term, the economy's growth rate, in real terms, will slow down to around 3% in 2023, and is expected to rise to 3.3% in 2024 and 3.2% in 2025. A relatively high growth rate, at a time when it is certain that some EU countries are entering recession.
The unemployment rate in 2022 is expected to fall to around 7%, compared to 7.5% in 2021. And continued economic growth is expected to lead to a further reduction in unemployment to around 6.4% in 2023, 5.7% in 2024 and 5% in 2025.
An unemployment rate that equates to full employment conditions and allows for the implementation of yet another major social reform of this government, the introduction of the minimum wage.
Let's also talk about the finances.
In 2022, the fiscal balance of the General Government is expected to be a surplus of 1.2% of GDP (equivalent to €308.3 million) while the primary surplus is estimated at 2.7% of GDP (or €707.2 million) compared to a deficit of 1.7% of GDP and a primary surplus of 0.1% in 2021, respectively. The fiscal surplus is projected to widen over the three-year period 2023-2025 to 1.7%, 2.3% and 2.3% of GDP, respectively. If, of course, the right policies are followed. As you know, the economy is not a formula.
At the same time, public debt at the end of 2022 is expected to be limited to 89.3% as a share of GDP, a significant reduction compared to 103.6% of GDP in 2021. It is projected, with the maintenance of a prudent fiscal policy, to continue its downward trend, reaching 83.3% of GDP at the end of 2023, 76.5% at the end of 2024 and to be limited to 72.3% of GDP at the end of 2025.
And here I owe an answer to those who accuse the government, political opponents and friends alike, that the government is "building reserves".
The government is not building reserves.
The government is not building reserves. The easiest thing to do would be to populate and use the economy as election spoils, which I am sure many of the political forces would do. But what a responsible government builds is. The emergency aid packages that we have been able to make available to households and businesses during the three recent crises amount to more than €4 billion.
[*][*] It is building the protection of households, businesses and future generations.
[*] It continues to build the credibility that is more necessary than ever in these difficult times that we are entering, in which the sustainability of public debt is becoming crucial. A time when markets are becoming tighter and even extreme reactions are not excluded, as we have recently seen in the case of the UK.
[/LIST]
The upgrading of the Cypriot economy in the midst of very difficult conditions is mainly due to the reduction of public debt but also to the government's strong commitment to a systematic policy of fiscal discipline. Continuing in this direction is imperative so that further upgrades can follow.
Further upgrades are expected to lead to an improvement in the government's borrowing conditions, the reduction of public debt servicing costs so that more money is available for social and development policies and the maintenance of the credibility of Cyprus' economy by continuing to increase foreign investment.
It is no coincidence that Cyprus has risen from 68th to 18th place in the Greenfield FDI performance Index, which records the performance of countries in attracting foreign investment, which is very important for creating jobs and increasing domestic consumption and incomes. Particularly in the volatile international environment we live in today. We have recorded the largest increase of all countries. With foreign direct investment increasing in the first half of 2022 in Cyprus by 160% compared to pre-pandemic levels.
This is the result of sound fiscal management, combined with the implementation of the new growth model of the Cypriot economy, "Vision 2035". A new growth model prepared in a scientific manner in cooperation with the Council of Economy and Competitiveness. It is the first time since 1974 that the country is proceeding on the basis of a coherent, holistic, optimistic yet realistic Economic Development Model for all sectors of the economy. And it is the first time in the history of the Republic of Cyprus that the budgets of the State itself, and the one you have before you, are prepared on the basis of this specific long-term development plan instead of piecemeal and possibly disconnected policies.
We do not bless our beards. It is these facts that this year led two of the four international rating agencies, DBRS and S&P's, to upgrade the Republic of Cyprus' credit rating by an additional notch within the investment grade range.
In addition, Moody's confirmed the credit rating of the RoC at Ba1, changing the outlook from stable to positive, leaving open the possibility of an upgrade within the next 12 months. S&P's recent upgrade of the Republic of Cyprus' long-term debt rating, as stated in its report, is attributed to the strong fiscal performance of the Cypriot economy over the past 10 years, which the agency predicts will continue despite the impact of the war in Ukraine.
I challenge anyone to tell me which other country has had such a performance.
So I regret, Madam President, that we have not followed the policies of the past:
- The policies that led to the doubling of the public debt in only 5 years in order to give increases in wages and benefits, untargeted benefits with no real social impact as it turned out.
- The policies that led to successive downgrades and to our exclusion from the markets so that we had to turn to the Troika in a humiliating way for a bailout and supervision.
- The policies that did not increase public debt (as we did in a crisis period) to deal with the crisis, but increased public debt in a period of growth and created the crisis!
Do you know what we were told in Europe, dear Members of Parliament in 2013 when we argued that other countries in the EU had the same exposure in the banking sector as us but no haircut?
We were told "YES, but you needed us...In other countries if there was such a crisis they made sure they had the reserves to protect the deposits".
We didn't have any because we made sure to bankrupt the state.
So we, Madam President, choose to stand on our own two feet. We choose the path of responsibility. The Cypriot economy is no longer in its infancy to allow childish mistakes and policies. We must grow up and, like any good householder, we must learn to live according to our incomes and save for our children's future. We should not beg for help as we did in 2012.
Madam President, Ladies and Gentlemen of Parliament,
It has been a common political line from political parties in recent years as we watch the debates on budgets in Parliament that "budgets lack vision".
But the Budgets before you are not only visionary, but that vision is invested in detail with concrete policies that deliver results. A vision that is budgeted for. It is:
- the 'Cyprus 2035 Vision' which is the new development model for Cyprus with more than 270 specific and budgeted policy areas,
the 'Cyprus Tomorrow' vision and the Recovery Fund, which is the vision of the European Union itself, from which we have taken credit for the new green, digital and resilient economy we have designed. It provides for the mobilisation of €4.4 billion for the period 2021 - 2027, and is expected to boost the growth potential of the economy by 7% in Gross Domestic Product in the medium term, while creating more than 11 thousand well-paid jobs,
- the vision of a meaningful and targeted expansionary fiscal policy, so that we not only continue to deal with the crisis in the best possible way while it lasts, but also lay a solid foundation for tomorrow. But a fiscal policy that takes debt sustainability very seriously and does not place additional burdens on our children. We have burdened them enough in the past.
- The vision of growth with the largest growth budget the country has ever had.
- The vision of a green and digital country with estimated green transition spending of EUR 892 million and digital transition spending of EUR 225 million. The vision of policies and incentives that bring foreign investment to our country.
- The vision of a welfare state with integrated policies concerning the GHS, the EHIC, low pensioners, vulnerable groups.
- The vision of a welfare state with integrated policies concerning the GHS, the EHIC, low pensioners, vulnerable groups.
- The vision of social justice.
Because despite the adverse economic conditions, social indicators of inequality and poverty continue to show improvement.
- The percentage of the population at risk of poverty, i.e. whose disposable income was below the monetary at-risk-of-poverty threshold, showed a decrease, reaching 13.8% in 2021 compared to 14.3% in 2020, 15.4% in 2018 and 15.3% in 2013.
- The percentage of the population at risk of poverty or social exclusion in 2021 showed a marginal change to 21.7% compared to 2020 (21.3%), an improvement compared to 2018 (23.9%) and a very significant improvement from 2013 (27.8%).
- The Gini coefficient, which is an indicator of unequal distribution or concentration of income, showed a marginal change in 2021 as it reached 29.4% compared to 29.3% in 2020 and 29.1% in 2018, while showing a significant improvement from 32.4% in 2013.
- In 2021 the share of income of the richest 20% of the population was 4.2 times higher than the income of the poorest 20% of the population (S80/S20 Index), compared to 4.3 in 2020 and 4.9 in 2013, also showing a significant improvement. They are official statistics of the European Union with Cyprus comparing favourably with both the Union average and most European countries.
Of course, income equality is neither a solution nor a panacea. Income equality can be achieved through recession, through crisis. With the poor becoming poorer and the middle class and the rich becoming even poorer. And this was the result in several countries where wrong policies were followed. Policies that only knew how to redistribute wealth instead of creating it. In the countries of actually existing socialism.
We don't want a society of equals in poverty. We want policies that create wealth that is distributed to all. With incentives for private investment, with increased consumption for all. And indeed wealth creation, high growth rates can and do exacerbate income inequality. But they increase them by increasing incomes, purchasing power and prosperity especially of the poor.
Of course that is not what happened in Cyprus according to the statistics. The high growth rates have also led to a reduction in social inequalities precisely because in the last ten years we have managed to build a real welfare state which Cyprus has never had before.
Madam President, Ladies and Gentlemen of Parliament,
We are not embellishing anything. We recognise that we are living in difficult circumstances and that challenges exist for many groups of the population. We are not complacent.
We recognize the fact that next year and the years to come are going to be quite difficult for the global and Cypriot economy.
We believe that we have prepared a Budget of responsibility and growth, which is called upon to support society and the economy in this difficult period, but which also looks to the future.
A budget with horizontal and vertical reforms as the continuation of reforms is a milestone for the modernisation of the country and the sustainability of the economy.
The challenges we have faced in recent years and continue to face are complex and multidimensional. We are entering a new era of the economy where nothing can be taken for granted.
Parliament has an important and active role to play in both the implementation of reforms and the passing and scrutiny of the budget.
The State Budget before you is not a set of numbers. It incorporates principles and policy philosophies.
- It gives a positive momentum to the economy by implementing new development projects while enhancing social justice.
- It ensures the maintenance of a favourable business environment without additional taxes.
- Contains new policies and important reforms.
Uncertainties and problems in society naturally persist and risks continue to lurk. To address them requires prudence and prudence, consensus and determination. We need not to underestimate the truths and the dynamics of the economy and not to be populist. A few wrong policy moves can turn everything around overnight in the economy. With disastrous consequences for society and future generations.
We as a government deliver a robust economy, with positive growth rates, and low unemployment. But also with great challenges for the next government.
The passage of the Budget Bill before you sets the stage for a continuation of this positive trajectory. The rest depends on the political decisions of the next government.
Therefore, on behalf of the Government, I urge you to vote in favour of the State Budget for 2023 and the Medium Term Fiscal Framework for the three-year period, in Law, in the well-understood interest of society and the Republic.
Therefore, on behalf of the Government, I urge you to vote in favour of the State Budget for 2023 and the Medium Term Fiscal Framework for the three-year period, in Law, in the well-understood interest of society and the Republic.
Contents of this article including associated images are belongs Cyprus Times
Views & opinions expressed are those of the author and/or Cyprus Times
Source
