Something must be done about public wage bill now
By Hamza Hendawi
THE ISLAND’S public wage bill is eating up nearly half the revenues, leading the economy to a deadlock, and something must be done about it now, Finance Minister Christodoulos Christodoulou said yesterday.
Speaking to members of the House’s Finance Committee, he said lower oil prices on world markets would provide a respite for the economy, reducing the projected fiscal deficit for 1998 from 7.3 per cent of GDP to about 6.3 per cent. The deficit stood at 5.1 per cent in 1997.
Christodoulou, who saw his bid to raise taxes rejected by the House in May, said the public wage bill for 1998 was £600 million, or about 48 per cent of revenues, compared to £548 million in 1997.
State pensions, which stood at a modest £12 million in 1987, snowballed to £84 million in the 10 years since.
“Savings need to be made on the state wage bill and there is room to do so, ” said Christodoulou without giving details.
The minister’s blunt language, however, appeared to signal that the government of President Glafcos Clerides, who made an election promise not to raise taxes this year, might finally be contemplating a move to streamline or downsize the elephantine public sector, whose marked growth in recent years has been blamed by critics on Clerides.
Beside a growing wage bill, Christodoulou has blamed the growing fiscal deficit on what he calls a deliberately expansive fiscal policy in 1997 to inject life into a sluggish economy, on subsidies for a drought-hit agriculture sector, and on loss of revenue — estimated at £130 million this year — as a result of compliance with a customs union agreement with the European Union.
The stock market, meanwhile, took heart yesterday from a package of incentives passed by the House, sending share prices up to record their by biggest one-day increase in six weeks.
The official Cyprus Stock Exchange all-share index closed up 1.39 per cent but ended a modest 0.81 per cent up week-on-week. Yesterday’s rise was the biggest in a single day since May 29, when the index rose by 1.54 per cent.
The market incentives, approved on Thursday night, allow offshore companies on the island to list and invest in the fledgling bourse without losing their tax breaks. There are more than 30,000 offshore companies in Cyprus, of which about 1,000 maintain fully-fledged offices.
The bill also provided for a five-year tax break of 50 per cent to newly listed companies, with £100,000 in profit as the maximum allowance. Investors are also given tax breaks if they invest in newly listed companies.
“The market felt good about the incentives,” said Neophytos Neophytou of AAA United Stockbrokers. “If nothing negative happens on the political front, we take this to be positive on the market,” he added.
“The mood was bubbly,” said Yiannos Andronikou of Suphire, a Nicosia-based brokerage. “But the rise could also be attributed to the feeling by many traders that prices had fallen so much it was time to buy cheap.”Shares on the Cyprus bourse, which trades in about 50 securities, made gains of about 20 per cent in the first four months of the year, but have shed about half of these gains since the start of May when efforts to restart talks on a Cyprus settlement hit a new deadlock.
