THE INTERNTIONAL Monetary Fund (IMF), as expected, has established that the public sector wage-bill is the “cause of the problem of the deficit” in public finances. It also pointed out that the only way to decrease the deficit was to reduce the huge cost of the state pay-roll.
The IMF, it is worth noting, also identified the very serious weakness of the pension system, stressing that a “long-term solution dictates a better balance between pension payments and contributions.” Its officials also entered the debate on corporate tax, expressing reservations about government plans to increase it from 10 to 11 per cent.
In defending the latter, the finance minister argued that an increase of one percentage point would not be felt. What is quite incredible is that everyone accepts that corporate tax is actually only 10 per cent. I have heard nobody challenging this lie. The truth is that for Cyprus companies, tax on profits is not 10 per cent but 19.45 per cent. And if the bill for the increase was approved it would become 20.35 per cent.
As most businessmen know, apart from the initial 10 per cent, at the end of the second year, after every accounting year, a company pays in the form of ‘defence contribution’ an additional 15 per cent on 70 per cent of the untaxed (90 per cent) profit. In this way, the actual tax on profits rises to 19.45 per cent. It makes you wonder why none of those attacking the government proposal on a daily basis (including DISY’s Averof Neophytou) never pointed this out. It is an indication of the slap-dash approach of our politicians.
As for the cost of the pensions of the public service, I will repeat the old proposal of this column for the termination of the outrageous arrangement whereby public servants are paid very high pensions, without contributing to the pension fund. In this respect, President Christofias and AKEL owe us an answer to a very simple question. By what reasoning do workers (whose interests they are supposed to protect), who pay 6.8 per cent of their monthly earnings, collect a basic monthly pension once they reach 63, while a public servant, without paying a cent from his wages, is given a pay-off of a few hundred thousand euro, when he retires at 60, and until he and his wife both die, collect a pension that is at least three times as big the private sector worker’s. What about Christofias’ promises of a fairer society?
According to the finance minister the increase in the corporate tax would boost state revenue by €70 million. However the public sector pay-roll is set to exceed €2.2 billion. I have calculated that if public servants contributed the same amount from their wages – 6.8 per cent – as all other workers to the Social Insurance Fund, state revenue would be boosted by €70 million. And if the government cuts another five per cent from the public servants’ wages as a contribution towards the pay-off they receive on retirement (as other workers do with provident funds) the government would collect another €110 million each year.
And this would happen every year and not just for two years as is the case with the government’s corporate tax increase. If Christofias has the guts to do this, it would be a big step towards the establishment of the fairer society he dreams of. And it would increase state revenue in a fair and equitable way.
