THE government is pushing for a freeze in the state payroll for two years as part of additional austerity measures that also include taxing high incomes in the private sector and a small levy on companies with domestic activities, it was announced yesterday.
The measures aim at restoring Cyprus’ access to the international markets for its financing needs, lost after successive downgrades by all ratings agencies.
“Otherwise, Cyprus joining the EU support mechanism should be considered a given,” Finance Minister Kikis Kazamias said.
Kazamias said the state payroll freeze would save the state around €355 million in 2012 and 2013.
The freeze includes pay scale rises and cost of living allowance payments.
“This will be combined with a small charge – on a sliding scale – on the higher salaries in the private sector and taxing businesses with domestic activities a very small levy based on their turnover,” Kazamias said.
Though not finalised yet, the minister said the two-year tax on private sector workers could be 0.5 per cent for income of between €2,500 and €3,500 per month, 1.0 per cent between €3,500 and €5,000, and 1.5 per cent for income over €5,000.
“I think it is a correct approach for everyone to contribute in overcoming the crisis,” Kazamias said.
To a comment that €2,500 was not a high salary, Kazamais said the average monthly wage in Cyprus was €1,900.
The levy on companies will only concern those with activities on the island and will not be over 0.5 per cent of their turnover. This will also be for two years.
Cyprus-based companies with international activities will not be affected, the minister said.
Public sector unions have already voiced their opposition to a wage freeze.
Secondary school teachers union OELMEK on Thursday threatened “immediate and dynamic” measures if the government goes ahead with such a measure.
Kazamias said he will try to start contacts with the unions on Monday.
“I am optimistic that we will reach a positive conclusion,” he said.
Successive cuts to its credit rating have caused Cyprus’ bond yields to spike, effectively shutting it out of capital markets.
It recently signed for a €2.5 billion loan from Russia, which will cover refinancing requirements next year.
Kazamias said the freeze on the state payroll, in conjunction with measures included in the 2012 state budget, would gradually restore Cyprus’ credibility abroad and further cut the deficit for next year.
It would also contribute towards avoiding sanctions from the European Commission and resorting to the support mechanism.
The Commission wants to see Cyprus’ deficit brought below 3.0 per cent, if the island wants to dodge the bullet.
“We cannot overlook this. We need to realise that whether we like it or not, we have community obligations,” Kazamias said. “Starting in 2012, Cyprus must convince by preparing a midterm stability framework — covering a three-year period – that we will reach a zero deficit by 2014.”
On top of the austerity measures, the ministry is finalising proposals designed to boost growth through public and private sector projects.
