CYPRUS is running a two-speed economy and society, and unless the public sector is radically restructured – including the eventual privatisation of the semi-state bodies – it will face a rocky ride, Employers and Industrialists Federation (OEV) President Andreas Pittas said yesterday.
Speaking to the press to mark OEV’s 50th anniversary, Pittas said that if a series of structural economic reforms aimed at reducing the budget deficit are not carried out urgently, “we could be led into an even worse economic crisis which in turn will bring stagflation, increased unemployment and large public deficits that will inhibit any prospect for growth.”
Focusing his fire on “an excessively-funded, ineffective and over-privileged civil service”, Pittas said today it is “perhaps the biggest problem facing the Cypriot economy”.
“The way it operates, the civil service is prejudicial to the interests of the private sector and society in general…and is hampering the growth of the Cypriot economy,” he said.
Pittas argued that the levels of wage and pension entitlements as well as the unreasonably high wage increases enshrined in law for the civil service and broader public sector create the preconditions for the Cypriot economy to “sink to its knees” under the weight of the excessive funding needed.
He said figures given by Finance Minister Charilaos Stavrakis showed the number of state employees had grown from some 34,000 in 1990 to around 52,000 in 2009, with an increase in the annual wage-bill from €372 million to €2.024 billion. For the same period, annual public sector pension payments grew from €47.4 million to €503.2 million.
On this basis, OEV is calling for: an immediate freeze on hiring new public sector staff for at least the next five years and the introduction of transfers between departments to cover new staffing needs; a total wage-freeze for the next three years, including adjustments in wage-scales; a 25 per cent reduction in entry-level wages; at least a 30 per cent reduction in bureaucracy; and the completion of computerisation and the adoption of online services across the board for dealing with businessmen and the public.
One of the most serious issues that must be faced immediately, he said, was the need to cut back the public sector, starting by narrowing the gap between the hours worked in the public and private sectors.
“This gap creates distortions in the labour market, imposes the inefficient allocation of resources, encourages clientelism, and more. Today there exists a two-speed economy and society, and if this situation continues we will face a rocky ride”, he said.
Referring to prevailing attitudes developed over years and apparently resistant to change, Pittas said: “Typically, the dream of most of Cyprus’ young people today is to become a civil servant.”
SIDEBAR
Pensions comparison: public employee vs private
According to figures compiled by OEV from public statistics for November 2009, a civil servant on grade A7 – having no university degree – received a civil service pension of €1,347 per month on retirement, plus a tax-free lump sum of €75,432. After reaching 63 years of age, the addition of a state pension would bring the monthly payment up to €1,717.
Civil servants only make contributions towards a state pension on a monthly basis, with the service pension being funded through the government budget.
A grade A11 retiree – typically a senior official – received €2,127 monthly rising to €2,620 at 63, plus €119,140 tax-free on retiring.
A grade A13 retiree – head of department – received €2,612 monthly rising to €3,105 at 63, plus €146,300 tax-free.
In August 2009, the maximum monthly payment a private sector pensioner with two dependents could receive from the state was €1,706.03.
The average monthly pension received from the Social Insurance Fund last November by private sector employees who had made all necessary contributions was €574.
The average monthly civil service pension was €1,692, almost three times the private sector average.
In November 2009, there were 16,000 retired civil servants, and 69,254 retired private sector employees.
