(NICOSIA) - Improved economic indicators will ensure Cyprus joins the eurozone January 1 with a 1.5 percent fiscal surplus as the economy grows at around 4.2 percent of GDP, Cypriot Finance Minister Michalis Sarris said Friday.

Initially the government had projected a deficit of one percent for 2007 but this has been revised upwards.

"We have managed to exceed expectations and balance public finances resulting in a small surplus of 1.5 percent of GDP for 2007," Sarris told reporters.

He said the turnaround is due to improved income tax collection and increased revenue from a booming property market.

However, the minister ruled out an increase in state handouts, or lowering heating fuel tax and capital gains on property sales, because of the newly-found windfall.

"If we reduce taxes (on property and heating fuel) it will increase demand and prices will go up," Sarris told reporters.

Four years ago Cyprus struggled to curtail a negative deficit touching 7.0 percent of GDP before the government introduced a tough austerity programme to secure the island's economic convergence with the single European currency.

A tight rein on spending and a tougher approach to tax evasion has helped fill state coffers.

Sarris also gave an upbeat prognosis of the Cyprus economy saying it would grow by a rate of 4.2 percent of GDP this year and 4.1 percent in 2008 -- way above the eurozone average. Cyprus' economy grew by 3.8 percent in 2006.

Inflation is also expected to stay at a manageable 2.1 percent this year, despite concern the economy may be overheating because of high consumer credit and borrowing for property construction.

The island also enjoys conditions of near full employment where income per capita is 93.7 percent of the EU average.

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