THIS NEWSPAPER had for years been calling for the abolition of the automatic indexing of wages, popularly known as the Cost of Living Allowance (CoLA), because it was an inflationary measure that exclusively benefitted high-wage earners. The operation of CoLA, repeatedly described by President Christofias as ‘a blessing’, has contributed to Cyprus’ steady loss of competitiveness and the widening budget deficit, something that bothered nobody until the last couple of weeks.
In fact, union bosses and politicians, for decades, were united in defending this blatantly harmful measure; even employers’ organisations supported it for the sake of industrial peace. A few years ago, fearing that the EU might issue a directive against CoLA, union leaders sent a letter to the Commission defending it and extolling its supposed benefits. This must have caused amusement in Brussels, considering there was not a single conventional economic argument to justify this measure that no other country used.
All of a sudden, the finance minister Kikis Kazamias decided that the sacred institution should be reformed in order to be made fairer. As it was, it benefitted the high-earners, for whom a two-per cent CoLA translated into a lot more money than for someone on a low salary. It took our great politicians more than 30 years to realise that this sacred institution benefited the people who needed no protection from rising prices instead of those who did. And misguided union bosses were effectively protecting the interests of the wealthiest rather than the poorest workers.
Kazamias made another astonishing discovery in the last couple of weeks: by freezing the payment of CoLA in the public sector next year, the government would make a considerable saving on the public payroll. In other words, the government would be doing exactly what Christofias had accused the Clerides government of doing a decade ago – tampering with the sacred institution of CoLA. This is the level of populist irresponsibility that we have to live with.
The irresponsibility continues, even now that we are on the brink of state bankruptcy. CoLA should not be reformed or suspended for one year, it should be abolished. Now is the perfect opportunity to get rid of an institution that causes only harm to the economy by fuelling wage inflation, thus reducing the purchasing power of low-wage earners instead of safeguarding it. And it is certainly not needed in the public sector, the employees of which are grossly overpaid.
Rather than toying with temporary, half-measures, the government should simply abolish this institution, which has been a scourge rather than a blessing for the economy, now that it has the opportunity to do so.
