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Cyprus: Cabinet Adopts Austerity Measures

Kikis Kazamias
Minister of Finance Kikis Kazamias said the abolition of the pension fund for civil servants and semi-governmental employees, provided for in the package of measures for fiscal consolidation, was of historical importance.
Speaking on Wednesday after a meeting of the Council of Ministers, which adopted a package of seven proposed legislation’s, to be sent to the House of Representatives for voting, Kazamias said the measure for the abolition of the pension fund along with other provisions to lower the starting salary of civil servants by 10%, reduce the number of civil servants by five thousand over the next five years, transfer of new employees to the Social Insurance Fund, the 3% special contribution of civil servants and the increase of contributions to the fund for widows and orphans, defuses the time bomb of the pension scheme and relieves the cost for the state funds.
Kazamias said that at this point the pension scheme costs 2.9% of the GDP and is on the rise, adding that the measures would curb this trend and reverse it.
He explained that the special contribution of 3% would be calculated on the monthly basic salary, any general pay rise or cost of living allowances, all benefits for compensation or overtime, and all flat benefits given to highly paid civil servants.
Kazamias added that the measures also provide for the creation of an additional taxation scale of 35% for persons with an income of 60,000 euros or more.
Furthermore, he said, the Council of Ministers agreed on the increase of the percentage of the special contribution to the defense fund on the interest debited or credited within the Republic, from 10% to 15%, while the percentage of the special contribution to defense on dividends would increase from 15% to 17%. Kazamias clarified that pensioners` deposits would be excluded from the measure.
The Minister of Finance also noted that the Council of Ministers decided on a 350-euro fee for all registered companies and that for 2011 the fee would be due before the end of the year, and would have to be paid by June 30 for all subsequent years. The proposed legislation includes a provision for groups of companies so that the ceiling rate would not exceed 20,000 euros.
Regarding immovable assets, Kazamias said that in general terms the decision doubles the tax and that a new scale of 100,000 to 170,000 euros would be introduced, noting that the calculations are made on 1980 prices.
The last proposed legislation concerns VAT, which will be increasing from 15% to 17%. Kazamias clarified that there would be no differentiation on the 5% VAT on foodstuff and pharmaceuticals, or the 8% VAT on services in the hotel sector.
Kazamias pointed out that the 2% increase would not be calculated on the cost of living allowance for the next six months.
The Minister said the commitment of the Council of Ministers to implement the binding three-year medium-term fiscal framework with an aim to drastically reduce the deficit to around 0.5% by 2013, was of great importance.
Kazamias said there was a commitment to conclude the dialogue on the restructuring of the cost of living allowance before the end of the year, with an aim to reach a ceiling income, above which there would be no allowance.
Regarding the downgrading of the economy by Fitch to BBB, Kazamias said the rating was an exaggeration and expressed regret that the agency believed Cyprus was moving towards the support mechanism, noting that such a possibility was not justified.
He said the public deficit would not exceed 6% with the new measures and that the package would reduce the deficit next year by about 3.5 units.
The House Finance Committee is set to discuss the proposed legislation in the week beginning 22 August and refer it to the House plenary on August 25 for approval.
(source: cna)

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