Cyprus Mail
Opinion

Our View: Government has iron clad case over wage reform

Finance Minister Harris Georgiades

FINANCE minister Harris Georgiades was correct to announce government plans to change the wage structure of the public sector, even if the changes would be introduced after the end of the assistance programme in 2016. Until then, the pay cuts and pay freeze agreed with the Troika will be in force, which gives the government more than enough time to make the necessary changes and introduce a wage structure that is sustainable.

Thanks to our irresponsible politicians and greedy unions, the growth of the public sector wage bill was always out of step with the increase in government revenue and annual productivity increases. The average annual growth, including the new appointments, may have been close to 10 per cent whereas the average annual productivity increase was in the region of two per cent; the state revenue may have grown but not so much as to justify the staggering pay rises.

Fearful of the political cost of rationalising the wage system, successive governments would introduce stop-gap measures such as two-year freezes on the general pay rise, while the automatic annual pay increments and Cost of living Allowance were preserved. There would also be a freeze on appointments that was rarely enforced. These patch-up measures solved nothing, merely controlling the deficits for a while. But the political will to tackle the problem once and for all did not exist, which is why the state was faced with bankruptcy by the end of 2012 and had to borrow money from CyTA and EAC provident funds to pay wages.

When the foreign consultants were brought in by this government to assist in the reform and restructuring of the public sector, the first thing they advised was the complete overhaul of the pay structure. Apart from being unsustainable, it de-motivated workers and contributed to low productivity levels. Did we really need experts to tell us that guaranteeing workers’ annual pay rises in the region of eight to 10 per cent – incremental pay scales, general pay rise and CoLA – irrespective of performance de-motivated them and encouraged low productivity?

This is why government plans to give pay rises that were in line with the performance of the economy are welcome. And it was a wise move for Georgiades to announce the government intentions now so there would be time for a public debate to be held. The unions, accustomed to their members receiving massive annual pay rises will put up strong resistance – the primary school teachers’ union has already labelled the plan unacceptable and provocative – but the government has an iron clad case which it should start to put across forcefully from now rather than wait until two months before the end of 2016.

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