I am before you today to present the main directions of economic policy and the government's programme, which are reflected in the proposed State Budget for 2023 and the three-year fiscal framework 2023-2025.
I would also like, before I proceed with the analysis of the Budget, to express before the House of Representatives my sincere thanks for the constructive cooperation, over the years, with all parliamentary parties without exception.
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. [*]Our sovereign bond ending up in non-investment grade ratings and consequently our exclusion from the international capital markets. [*]The banking crisis and the bankruptcy of the state which even put our existence in the Euro and the European Union in question. [*] The situation in the banking sector which, even after the haircut, continued to pose a threat to both the depositor and the taxpayer. [*]The restrictions on capital movements due to the massive outflow of deposits from 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]
There 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 for consumption 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 that we have received and been called upon to face, despite the three successive crises that we have experienced and continue to experience, we present today a balanced Budget and, most importantly, we deliver 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 a public debt below 90% of GDP, and a steady downward trend. An economy upgraded by the rating agencies and with strong growth prospects.
Our latest Budget comes 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. The beginning of de-globalisation is being marked, 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. [*] Drastic shifts in the labour market. [*] A tough stance 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, the proposed Budget, among other things, seeks to implement major projects that are expected to make a significant contribution to the economic development of the country and, by extension, to the development of 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, the proposed Budget, among other things, seeks to implement major projects that 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. [/LIST]
- Appropriations for social protection are also increased, by about 4%, as one of the objectives of the governance was and is to strengthen the welfare state, which has been achieved. The social protection 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 approximately 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 observed in supply chains. Inflation is a phenomenon that also seriously affects public finances since 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. The result of good management of public debt. 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 amounting to more than €400 million by 2022.
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. The continued growth of the economy 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 is equivalent to full employment conditions and that allows for the implementation of 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 in 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 a response to those who accuse the government, political opponents and friends alike, that the government is "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 EUR 4 billion. [*] It builds protection for households, businesses and future generations. [*] It continues to build the credibility that is more necessary than ever in these difficult times we are entering, in which the sustainability of public debt is becoming crucial. A time when markets are becoming tighter and even extreme reactions cannot be ruled out, as we have recently seen in the case of the UK. 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, to lower the cost of servicing public debt so that more money is available for social and development policies and to maintain the credibility of the Cypriot 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 disjointed 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, unsustainable benefits with no real social impact as it turned out.
- The policies that led to successive downgrades and our exclusion from the markets, resulting in our humiliatingly turning to the Troika for bailout and surveillance.
- The policies that did not increase the public debt (as we did in a period of crisis) to deal with the crisis, but increased the 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 to the banking sector as us but no haircut?
They told us "YES, but you needed us...In other countries, if there is such a crisis, they made sure they had the reserves to protect the deposits."
We didn't 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 have watched the budget debates 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. They are. 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 a budgeted green transition spending of EUR 892 million and digital transition spending of EUR 225 million over the three-year period 2023-2025.
- 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 social justice.
Because despite the adverse economic conditions, social indicators on 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 poverty risk 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.
The above are not declarations. 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 acknowledge 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 is 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 embodies principles and policy philosophies.
- It gives a positive momentum to the economy by implementing new development projects while enhancing social justice.
- 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.
On behalf of the Government, I therefore 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.
(NG/SX)
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