THE government and opposition parties yesterday rubber-stamped a fresh austerity package including a two-year wage freeze in the broader state sector to arrest fiscal deterioration and the island’s possible slide into seeking an EU bailout.
The measures also provide for a staggering contribution by private sector workers, including the self-employed who earn over €2,500 per month.
Asked if Cyprus would avoid resorting to the EU support mechanism, Finance Minister Kikis Kazamias said “I am optimistic we will avoid it.” “We want to show our determination, we can solve fiscal problems and we will exert every effort until the last to solve them on our own.”
The pay freeze in the broader state sector included pay-scale rises and cost of living allowance payments.
The anticipated savings and revenue from the package was not disclosed. Government spokesman Stefanos Stefanou said the commitment was that spending cutbacks would outpace an increase in revenue at a ratio of 2.0 to 1.0.
Unions last night were cautious in their response, after being briefed early in the day by Kazamias, the leaders of SEK and PEO spoke to CyBC television last night, and although not pleased, refused to be drawn on the possibility of taking industrial action.
Kazamias appears certain that the austerity measures would contain the island’s deficit for 2012 “markedly lower than 2.8 per cent
Officials have repeatedly said that failing to make some sacrifices now could mean harsher measures imposed by the EU if Cyprus resorts to the support mechanism.
And the EU has warned Cyprus with sanctions for violation of fiscal rules.
The deal was achieved during a lengthy meeting at the presidential palace with the participation of all parties represented in parliament.
“Despite the individual positions that were tabled, a wide consensus and convergence of views was achieved,” government spokesman Stefanos Stefanou told reporters.
The package also includes a raise in defence tax levied on the dividends of companies with a domestic turnover from 17 per cent to 20 per cent and a raise in VAT by two percentage points to 17 per cent, which had been pending since August.
At the same time, the government will start talks with the unions aimed at achieving a fairer distribution of the cost of living allowance.
The dialogue should conclude in six months.
In addition, the government said it will review the various allowances afforded to civil servants with a view to taxing any that are taken into consideration in the calculation of the retirement bonus and pensions.
Also in the pipeline are measures to fight tax evasion such as taxing withdrawals and loans from companies made by their directors and members of their families.
Salaries for which social insurance had not been paid would not be deductable.
The agreement provides for measures to boost growth, like helping small and medium businesses through a specific guarantee program in cooperation with the European Investment Bank, provision of tax incentives to invest profits in development projects, and expediting private sector priority projects.
Kazamias said some of the measures will be submitted to parliament immediately while others will be discussed by an ad-hoc committee that will iron out the details.
“The effort is to prepare the legislation by December 8, when I will officially present the (2012) budget in parliament,” the minister said.
If they are not ready by that date then it would be December 15, he added.
The ad-hoc committee made up by party and government representatives, will zero in on measures regarding growth and further cuts in the state sector operational expenditure – not wages.
The committee may need more time to process the measures – possibly concluding early next year.
Kazamias said certain decisions may not necessarily need parliament’s approval and would come into effect as soon as they are taken.
“With the implementation of all these measures we are giving a convincing response that public expenditure in the next two years will not increase, so that we can focus, without distractions, on other obligations like maximizing the growth rate,” Kazamias said.
The IMF expects an economic contraction of 1.0 per cent in 2012, which the minister said “we should try to prove wrong because a rise in growth by 1.0 per cent means 200 million in additional revenues for the Cypriot economy.”
Kazamias said further details and figures would be provided by Monday.
Kazamias spent half an hour briefing union representatives on the measures yesterday morning before the meeting at the palace.
Last night, SEK’s Nicos Moiseos told CyBC that on the one hand the government were speaking of a dialogue and on the other, party leaders were talking about taking the measures straight to parliament.
“We heard the finance minister was going to brief us. Well we’ve already been briefed – through the news. We don’t want a briefing, we want a dialogue and discussion,’ he said.
Moiseos said from the little discussion the unions have had with the official side, there appeared to be several issues that had not been properly examined…“clear injustices that they have to fix, and now there are other injustices”, he said.
“The measures regarding workers are clearly counted in the millions and the measures regarding wealth are being sent to committees,” he added.
PEO’s Pambos Kyritsis said it was positive that the government had agreed with the political parties but negative in terms of the lack of social dialogue. “We continue to insist that the package of measures has serious deficiencies,” he said.
Both union leaders refused to be drawn on whether they would take industrial action. Kyritsis said this was a question that could not be answered right now but would be a decision that would be taken within the union’s own organs. Moiseos said whether or not there would be measures, was a matter for members.
