THE GOVERNMENT’S first package of measures for the economy, which was presented to the House Finance Committee yesterday, was predictably disappointing, underlining the fact that the country remains hostage to union bosses.
It gave us a good illustration of how President Christofias actually views the consensus he has been using as an excuse for not taking the tough measures that would put public finances on a healthy footing and end the continuous downgrading of the economy. The emphasis was on raising state revenue through higher taxes, including a higher VAT that would lower the living standards of the lowest earners and the unemployed.
It is a very peculiar way of ensuring the social justice Christofias has been waxing lyrical about, but keeping the powerful union bosses happy is a higher government priority. Consensus was achieved by allowing Glafcos Hadjipetrou and his comrades to dictate the package of measures, which failed to address the root cause of the constantly widening budget deficit – the continuous growth of the public payroll.
The measures provide for 4.25 per cent levy on the gross monthly earnings of public employees, for the next three years, but once six-monthly wage indexing and annual pay scale increases are factored in to wages, none of them would be worse off. In other words, in order for public employees, our society’s best-paid workers, to agree to have their annual pay increases reduced (pay rises are in the region of five per cent) the government would impose higher VAT on the poorest workers and the unemployed.
By raising taxes it would reduce liquidity, but worse still it would be demanding that its borrowing requirements for this year and the next were met by the banks. Finance ministry Permanent Secretary Christos Patsalides told the committee yesterday that the government was working on the assumption that the Cypriot banks would cover the state’s funding needs, which would total €1 billion by the end of 2012. Taking money from local banks would mean even tighter credit for local businesses which are having huge difficulty staying afloat as things are.
Did the government consider the negative effects its measures would have on the wealth-creating private sector and employment? With the government sucking cash out of the market through higher taxes and borrowing from local banks (Patsalides, in effect, admitted that the government could not go to international markets before 2013) the economy will sink even deeper into recession. We wonder whether these half-baked measures that would be applied in instalments would stave off another downgrading of the economy, as Patsalides predicted.
But even if they do, it is the private sector that would pay the cost for keeping the union bosses and their pampered members happy.
