THE state would be saving some €230 million annually in the years following a public payroll freeze, Finance Minister Kikis Kazamias said yesterday, as he outlined before parliament the government’s priorities concerning the measures to consolidate the economy.
The government has decided to freeze public service salaries – including pay scale raises and cost of living allowance payments – for two years, as part of an austerity drive to avoid an EU bailout and potentially harsher measures.
Consolidating the public finances would also prevent EU sanctions for fiscal violations.
The freeze would save the state some €230 million in the next years since, on January 14, 2014, the salaries of the 70,000 government and broader state sector workers would continue to rise from the point they left off on December 31, 2011.
“From 2013, the state expects to save €230 million from the public payroll on a permanent basis,” Kazamias said.
“The wage freeze must happen now,” he went on to tell the House Finance Committee. “It does not really concern the 2012 budget, but our obligation to the mid-term fiscal framework.”
The minister said the public payroll has seen an average increase of over 10 per cent per year in the past 20 years, a figure that is way above the rise in productivity.
The measure “is not just for two years”, Kazamias noted.
The IMF said recently Cyprus had to contain public sector wages, currently at 15.4 per cent of GDP – the highest public wage bill in the eurozone.
Kazamias also prioritised the austerity measures pending before parliament, with the first being next year’s budget, the rise in VAT by two percentage points to 17 per cent and cutting social allowances by €200 million.
These must be approved by December 15 if Cyprus wants to avoid EU penalties.
These are followed by the public sector wage freeze and the introduction of private sector worker contributions, as well as legislation to fight tax evasion.
Last are measures of transferability within the civil service to tackle the situation of some departments being overstaffed, with others being in dire need of personnel.
The cuts in social spending have been met with resistance from various interest groups and the opposition, mainly as regards changes to child and student benefits.
Kazamias told lawmakers that parliament could change the targeting but it must not reduce the savings.
“What we are certainly not prepared to accept is any change or decrease in the €200 million in savings,” Kazamias said.
But he also voiced the government’s disagreement with thoughts to introduce a flat percentage cut on all allowances, which “essentially weakens the philosophy of targeting”.
The opposition, which has the majority in parliament, has signalled it could make changes regarding the allowances.
For over a decade, the state has been handing out various allowances without any criteria, which meant the well-off, who had no need of such assistance, were also eligible.
“We don’t simply want those who are eligible today, irrespective of whether they are millionaires, to continue to be eligible, simply by cutting 10 or 15 per cent from what they get today,” Kazamias said.
The government is proposing income criteria coupled with staggering cuts; a move that has angered large families.
The state will this year pay €1.3 billion in the form of social benefits.
The minister said the same philosophy will be extended to housing programmes, whether they concern refugees or non-refugees, in a bid to put an end to the state doling out thousands of euros to “families and people, who happen to have no financial need whatsoever”.
