Cyprus' Central Bank governor said on Saturday that he opposes a government plan to tax bank deposits aimed at shoring up the island's fiscal deficit. Athanasios Orphanides said that the plan would weaken Cyprus' large financial sector and increase risk amid continuing instability in the eurozone and in light of the island's recent credit grade cuts.
"Imposing taxes on banks will further increase the pressure and costs faced by the banking sector and by extension the cost of borrowing in all other sectors of economic activity," Orphanides said in an article in the Politis daily.
The government is proposing a two-year 0.05 percent tax on commercial bank deposits over 100,000 euro and is projected to raise 120 million euro ($170 million). Some 70 million euro would go into state coffers and the remainder into a bank stability fund.Last month, Moody's cut its rating on Cypriot government bonds by two notches with a stable outlook amid concerns over public accounts and the financial system's exposure to debt-ridden Greece. S&P cut its grade by one notch with a negative outlook last November over similar concerns, while Fitch put Cyprus on notice in January for a possible downgrade.
The economy of Cyprus, a euro member grew by 0.9 percent last year after a 1.7 contraction in 2009. The International Monetary Fund last month predicted growth of between 1.5 and 2 percent this year with favourable prospects for a continued upturn in 2012.
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