FORMER PRESIDENT George Vassiliou yesterday highlighted the “urgent need for immediate measures” to tackle the economy’s structural problems, pointing to a first of its kind study on the growth of the public sector since 1960.
Concerned about the growing problems of the economy, Vassiliou embarked on a three-month study with his associate Costas Paschalis on the size and cost of the civil service in the last 50 years.
The results are pretty sobering, depicting a civil service that is already bloated, absorbing 58 per cent of all tax revenue, and getting hungrier.
Speaking to the Sunday Mail yesterday, Vassiliou said: “What really concerned me was first, the economy has significant structural problems, which we need to realise. Added to that is the Greek crisis which makes the consequences of our structural problems worse, making the need for reform even greater.”
The public sector has become a great burden on the state, he said, adding: “It’s like walking with a 50kg weight on your foot.”
“Essentially you can divide Cypriots into public sector workers and non-public sector workers in terms of income, including benefits, pensions etc. On average, the public sector income is double that of the private sector, but if you take out the banks and semi-government organisations from the private sector then it is triple. This means three quarters of the population are earning much less than the quarter,” said Vassiliou.
According to the study, the government had 15,141 employees in 1960, which increased to 25,869 by 1980. In the next 30 years, this doubled, reaching 51,415 civil servants working for government or non-profit organisations like the CTO or THOK. If one adds the semi-government organisations (SGOs) then we see a total increase from 32,639 in 1980 to 66,460 in 2010.
Significant increases were seen in the staffing of local authorities and non-profit organisations like the two state universities. There was also a disproportionate rise in the number of school teachers compared to the increase in pupils.
In 2010, the total cost of the state payroll including pensions, benefits and state contributions to the social insurance fund, came to €2.540 billion, marking 14.5 per cent of GDP, an “undoubtedly very high figure”, said the study.
The state payroll has increased fivefold since 1992, with an average annual increase of 8.6 per cent. While the inflation rate grew by about two to three per cent each year, the state payroll, as a rule, doubled or tripled that figure.
The 2010 cost of the state payroll represents 58 per cent of total tax revenue which came to €4.373bn. The analysts warned if tax revenue remains the same, and the payroll continues to rise then the public deficit will reach eight per cent by 2015.
If measures are not taken to tackle the economy’s structural problems, “the state will reach a point where it will not be able to meet its obligations”, warned the study.
A series of measures are proposed: abolish existing vacant positions in the civil service. Impose a two year moratorium on hiring replacements for employees who leave, except for doctors and nurses. Freeze annual pay increases for two years in the wider public sector. Implement job transferability in the civil service immediately. All new staff must contribute like the private sector to pensions. Reduce wage scales to reduce the wage difference with the private sector. All civil servants should start contributing even small amounts to the pension fund, gradually reaching private sector levels. Impose retirement at the age of 65 across the board. Ensure more targeted social benefits for those who really need it.
“It’s clear we either take steps to show we’re aware of the problems or face another downgrade by the rating agencies which will affect government, the public deficit and ability of the private sector to function, impacting seriously on the liquidity of the Cyprus economy,” said Vassiliou.
The study was sent last week to the President and all parliamentary party leaders, as well as the heads of unions, employer organisations and banks.
