The Minister of Finance for the State Budget 2021 delivered a speech in the House of Representatives.
According to what he said: "I am before you today, to present the basic directions of the economic policy and the government program, which are reflected in the proposed state budget for 2021 but also in the three-year fiscal planning.
Before proceeding with the analysis of the budget, I would like to express before the Parliament my desire for sincere cooperation with all parliamentary parties without exception, so that in a spirit of consensus we can design and implement policies that are beneficial for the country.
The Budget for 2021 is submitted before you, in a period of global and national test. It is set in the midst of the worst global health crisis of the last hundred years and our worst economic ordeal since the 1974 invasion.
In addition to these challenges, the budget is being tabled at a time when the country is at the center of major geopolitical challenges due to Turkey's threats and aggressive stance. At the same time, Turkey is instrumentalizing immigration, with the result that our country is under excessive migratory pressures, with consequent consequences on its social fabric.
It is in this context that we are called to find those consensus in order to manage in the best possible way the many challenges that our country faces.
In the field of economics, we are experiencing a symmetrical crisis of enormous proportions. A crisis that is not due to the pathogenesis of our economy but threatens it and tests its resilience.
The outcome of this financial crisis is determined by parameters of health issues and not by economic data, which gives it greater uncertainty. We need to adapt to this data with flexibility and adaptability, using the budget as the main tool to mitigate the effects of restrictive measures.
The Government, within its capabilities, has implemented and continues to implement a flexible and targeted, expansionary fiscal policy.
A policy that to date lists over 120 different measures, as part of a holistic emergency package to support the economy. A support package that places particular emphasis on supporting the incomes of workers and vulnerable groups of the population, but also on practical support for the health sector.
This expansionary fiscal policy in the midst of an economic downturn, inevitably led to an increase in public debt and turned the fiscal position of the state into a deficit, but without jeopardizing the long-term sustainability of public finances. Of course, as I have repeatedly emphasized, state resources are not unlimited, so any state support should take this important parameter into account.
The fact that despite the significant deterioration of economic indicators, the International Homes have not downgraded the debt of the Cypriot economy, shows that the policies we have implemented to reduce the impact of the pandemic, were the appropriate ones.
In relation to the macroeconomic forecasts on which the 2021 Budget was based as well as the three-year fiscal planning, the growth rate for 2020 is expected to shrink by -5,5% compared to -7,0% which was the initial forecast in April 2020. The forecast is based on the fact that in the first half of 2020, the recession was -5.5%, a development significantly better than expected.
From 2021, the economy is expected to enter a recovery trajectory with growth reaching close to 4.5%.
The unemployment rate for 2020 is estimated to have an upward trend compared to the 7.1% that fluctuated in 2019, but its launch will be avoided due to the support measures of employees and companies that we have received and continue to receive. For the coming years, unemployment is projected to fall to 7% in 2021 and 6% in 2022.
It is worth noting that the forecasts, which are verified with a small deviation by the European Commission itself, are significantly better than the performance of most European countries, and incomparably better than EU tourism countries. Our estimate is that in the absence of government support measures, the recession would approach and possibly exceed 10%. It is also clear that the labor market support plans we have implemented to date have largely succeeded in curbing the growth of the unemployed.
Regarding fiscal figures, it is estimated that the fiscal balance will be in deficit and will amount to 4.5% of GDP for 2020 from a surplus of 1.7% in 2019, while marginal deficits are expected in the coming years, amounting to 0.7% of GDP in 2021 and 0.6% in 2022.
Government debt is expected to increase to 115% of GDP in 2020 from 95.5% in 2019 and then return to a downward trend from 2021 where it is projected to decline to 111% in 2021, due to the expected economic recovery and improvement of fiscal indicators . It is emphasized that one of the reasons for the increase in public debt in 2020 is because the Republic of Cyprus, as one of the measures to deal with the pandemic, has accumulated significant cash to be able to manage any additional negative developments ( eg second wave of pandemic) without ever jeopardizing fiscal sustainability.
Of course, any macroeconomic forecasts, both in Cyprus and abroad, are made in exceptional circumstances, which inevitably create a particularly excessive uncertainty as to how the real economy will move in the short term.
In 2020 we had to significantly differentiate our economic policy priorities to deal with the pandemic.
In this context, inter alia:
We have supported and strengthened the health system with an additional € 100 million to strengthen staff, expand infrastructure and equipment, to fight the pandemic and to address future challenges.
We supported the incomes of over 200,000 employees, vulnerable groups of parents, parents and students.
We have supported thousands of companies with direct sponsorships to cover part of their operating costs.
We have supported specific sectors of the economy that have been hardest hit by the crisis, such as the tourism and agricultural sectors, as well as the transport sector.
We have implemented liquidity programs for businesses.
We have strengthened the unemployed by extending the unemployment benefit.
We supported the borrowers.
One would expect that under the current circumstances, and due to the fiscal pressures brought about by the pandemic, the 2021 budget would be more restrictive than the 2020 budget.
Instead, we present to you for 2021 a budget increased by € 742 million or 10.6% compared to the 2020 budget. We have consciously chosen to continue - through the budget - a multi-layered attack on the challenges we face.
The 2021 budget was prepared with 5 main, equally important strategic objectives:
The first and most immediate strategic goal is the continuation of emergency measures to support workers and businesses affected by the pandemic.
We recognize that in a prolonged period of non-operation of the market or operation of the market under restrictions, despite the Government's continued support measures, several companies are on the verge of endurance, especially after the new restrictive measures. We will continue to support them with new plans that will be announced in the coming days, in addition to the employee income support plans that have already been announced.
That is why the 2021 budget incorporates funds for both employment subsidy and direct business support policies. They also cover funds for very important policies that have already been announced, such as the interest rate subsidy for businesses and households taking out new business or mortgage loans.
You all realize how important it is to vote on a budget for all these companies and employees today.
The second strategic goal is to strengthen and consolidate the Welfare State. The 2021 budget:
It is the largest budget in the history of the Republic in the field of Health, which now represents 9.63% (€ 1.017m) of the total budget, a percentage many times more than it was a few years ago. Compared to last year, it implies an increase in health expenditures by € 55m.
Strengthens social justice by increasing by € 117m. of the budget of the Ministry of Labor, Welfare and Social Insurance. Indicatively, the substantial increase of the Low Retirement Allowance for all low-income retirees who have a total income below the poverty line, as well as allowances for the maintenance of children placed in families. In total, social benefits in 2021 amount to € 2,914m. and are increased by € 146 million compared to 2020.
The third strategic goal is our defense shield: Taking into account the geopolitical instability in the region and the continuous and growing challenges that the country faces from outside intrigues. The 2021 Budget also includes significant increases in spending on our defense shield. Specifically, the budget is increased by 71 million euros or by about 20%. In addition to the additional appropriations granted through the Supplementary Budget of 2020, amounting to 77m. euro.
Fourth strategic goal: The 2021 Budget is also a budget that looks to both the next day and the next generation. It lays the foundations for rapid recovery after the end of the pandemic, but above all it lays the economy on a sustainable and dynamic growth since:
Incorporates in the budget the necessary appropriations amounting to € 634m. for the implementation of the National Recovery and Sustainability Plan based on the European guidelines.
It strengthens entrepreneurship with a budget of € 400 million for the period 2021-2027, which is almost three times more than the previous programming period, with the first programs being announced in 2021.
It aims at green growth with more than 50 development projects related to the circular economy, waste and water management, biodiversity conservation, but also policies related to the e-mobility and disposal of polluting vehicles.
It includes the largest budget ever allocated to e-government and digital transformation, with projects exceeding € 140 million under a specific action plan, as well as programs to promote research and innovation.
Implements large development infrastructure projects totaling € 1 billion. Indicatively, I mention the increase of the development expenses of the Ministry of Transport, Communications and Works in relation to the previous period by 82% for the next three years. It includes long-awaited major projects whose implementation will begin in 2021, such as the Cyprus Museum, the Paphos-Polis Chrysochous Road, the Astromeriti - Evrychos, Nicosia - Palaichori highway, and the junction at the entrance of Nicosia.
Fifth strategic goal: it concerns the reform orientation of both the budget and the government policy and it is something that should be a national goal as well. We seek the cooperation of the executive and the legislature, in order to jointly support an ambitious reform effort that will change the country and correct distortions of the past: This planning includes, inter alia:
Shield of the Welfare State through the reorganization, modernization and strengthening of the Social Welfare Service, the Service
Benefits Management, and implementation of an Action Plan to combat Domestic Violence.
The reform of the Local Government, which radically changes the way the state operates, both at local and central level. In addition to structural changes, it also creates savings of tens of millions as additional income for society, which come neither from increased spending nor from increased taxation but as a structural result of a reform.
The reform of the judiciary and the courts, something that along with the faster administration of justice and the strengthening of the sense of justice of our fellow citizens, will lead to the improvement of the competitiveness of the Cypriot economy, since "the speed of justice" is an area in which we lag behind and keep Cyprus low in international competitiveness indices and has a negative impact on local and foreign investment.
The establishment of a new Independent Supervisory Authority for the Insurance Sector and the Welfare Funds sector, with the aim of strengthening and properly developing an emerging sector for our economy.
The promotion of the "Green" tax reform, which will shift the burden of taxation to environmentally harmful activities, with a corresponding reduction in the taxation of capital and labor.
The reform of the legal framework in relation to the banking sector, including the insolvency framework of banking institutions, electronic access of credit redemption companies to the database of the Land Registry and the "ARTEMIS" system and amendment of the Law on Receipts so that the documents of redemption companies may be accepted as evidence before a court.
The reform in Education including the implementation within 2021 of the program for complete digital equipment of 6,000 classrooms throughout Cyprus.
Strengthening meritocracy through the reform of the human resource management system in the public service in relation to the recruitment, evaluation and development of staff.
The challenge of the reforms that will accompany the European Union Recovery and Sustainability Fund, which is the EU's own response to the quest for recovery and the creation of a sustainable European economy. Through this Fund, Cyprus has the ability to raise funds amounting to 1 billion euros, which of course it will repay gradually. The immediate use of this tool is of particular importance, as these funds will replace budget expenditures in the coming years, essentially helping the budget balance and the sustainability of public finances. In this effort, the Parliament will have a very important and active role, as it will be called to consent to the voting or implementation of reforms which will be set by the European Union itself as conditions for any disbursement. This is something that I have also pointed out recently in my private bilateral consultations with parliamentary parties.
We want to have the same results in terms of absorption of funds from the Recovery Fund as in the other Funds of the European Union, where Cyprus is one of the first countries in terms of absorption of funds by proportion of population, such as the SURE Fund or the programs of the European Investment Bank. In this national effort, good cooperation is required between the Government and the Parliament, as well as for the implementation of the entire reform program, which is what will change our country, will strengthen the competitiveness and will expand the productive base of our economy, but also will strengthen social cohesion.
I also note that in the context of maximizing the available resources, the 2021 budget continues to include measures to contain employment and the amount of allowances / allowances / financial benefits to the Public Service, while the non-granting of general increases continues.
The 2021 budget also ends the practice of temporary staff, aiming to meet the needs of public service staff by filling permanent posts rather than by hiring Fixed-Term Employees, correcting a timeless and unfair distortion of public service.
The budget also ensures the maintenance of a favorable business environment without incurring a single new tax or burden on companies and employees.
The economy is facing challenges that we must collectively address. It faces the challenge of a pandemic, the challenge of reducing a high debt that must return to a declining course, the challenge of the viability of the GESS but also the challenge of increased migratory flows.
However, it also faces the challenge of MEX in the banking sector. Despite the significant progress that has been achieved, with a total reduction of the MEC by 23 billion Euros or by 75,5%, the effort should continue. The level of MEX remains high and carries risks. Despite the fact that the liquidity position of the banks and their capital adequacy remains strong, it is also possible that re-pressures may be observed in our banking system due to the pandemic. It is therefore of the utmost importance to maintain a stable legal framework for reducing NPLs while having an effective insolvency framework. However, realizing the special circumstances we are going through, I have appealed to the Association of Banks to make a targeted suspension of sales until the end of March 2021, without jeopardizing the country's credibility by legislation that would send wrong messages to European rating agencies and Join.
When we talk about the banking system, we are not talking about the shareholders or the bankers. We are talking about our depositors and our savings. These are the things we must protect, but at the same time using the flexibility that the banking system can show to the benefit of the weakest, especially in emergencies such as today.
Meeting the challenges, rescuing the economy in the current adverse conditions we face is a national affair.
The Government, in this deep and unprecedented crisis, and with significantly reduced revenues due to the reduced economic activity but also the alleviations and suspensions of payments, has kept the Cypriot economy and society upright, paying salaries, pensions, allowances and grants.
We have achieved this through the budget and we want to continue to do so for as long as necessary and for as long as we can.
The state budget you have in front of you aims at this. To keep the economy and society afloat during the pandemic. But it also aims at a developmental counterattack in the post-pandemic era. It strengthens social justice and the welfare state, and includes those reforms that will shape a better future for our children.
Without the adoption of the Budget, neither new support can be given to employees and companies, nor social benefits can exist, nor can the health system function.
Even this mutilated operation of the state for only two months through the twelfths contains great legal challenges in case of a budget vote, since there has been no historical precedent since the operation of the Republic of Cyprus. It is clear that we will enter uncharted waters and a period of intense instability with incalculable economic consequences.
It is the duty of all of us towards the country and our fellow citizens, as we safeguard the stability and functioning of the state, showing the necessary consensus, despite any political disagreements that are respected, in order to ensure conditions of stability in the country, and continuation of the functioning of the state.
On behalf of the government, I call for a vote in favor of the state budget for 2021 in law, for the well-understood interest of the Republic and society. "Given these data, I am optimistic that this time, as always in the past, the state budget will be voted in favor."