Cyprus's government and opposition agreed on Friday to a new economic austerity package to arrest fiscal deterioration and the island's possible slide into seeking an EU bailout. Party leaders and government agreed to introduce a two-year freeze in wages in the broad public sector, an additional tax on private-sector earnings, an increase in VAT and additional savings in state spending, officials said.
Broad-party consensus to an austerity package while Cyprus was being hammered by ratings agencies for fiscal slippage this year is crucial; Cyprus's leftist government lost its majority in parliament in August after its coalition partner quit amid public anger after a munitions blast which destroyed the island's largest power station. Parliament is due to vote on the state budget in a two-day session in mid-December.
"We want to show our determination, we can solve fiscal problems and we will exert every effort until the last to solve them on our own," said Finance Minister Kikis Kazamias. A staggered levy will apply for private sector and self-employed workers with earnings in excess of 2,500 euros per month. A bill to increase VAT to 17 percent from 15, pending in parliament since August, will also be approved and a working group would look at additional savings in the public sector. The government has already announced it would trim some 200 million euros off its budget next year by cutting down on benefits.
Anticipated revenue from the package was not disclosed. Stefanos Stefanou, the government spokesman, said the commitment was that spending cutbacks would outpace an increase in revenue at a ratio of 2 to 1. Cyprus's credit ratings have come under pressure this year from fiscal slippage and exposure of its banks to debt-crippled Greece.