Cyprus Mail

Georgiades says failure to reform public payroll could undermine public finances

Finance Minister Harris Georgiades said that a failure to pass a government proposed bill linking public payroll to the economy’s performance, which is awaiting parliament’s approval could threaten the viability of public finances as a freeze on public wages expires at the end of the year.

“Let me explain that at the end of this year, the freeze on wage increases, incremental pay rises and wage indexation which traditionally inflated the wage bill at a rate exceeding the performance of the economy” phases out, he said in an interview on state-radio CyBC on Tuesday. “The Cypriot economy can never afford returning to procedures and mentalities of the past and we can never allow this to happen”.

The finance minister who oversaw Cyprus’s return to growth after a prolonged recession and the consolidation of public finances which led to the exit from the cash-for-reforms programme in March after three years, said that unless it comes to “another sort of arrangement,” any failure to pass the proposed draft bill means that public sector workers would receive pay rises “automatically, irrespective of the economy’s performance”.

The government submitted the bill together with half a dozen other proposed laws which aim a reforming the public sector a year ago. The parliament failed to debate on them so far.

The government generated a fiscal deficit of 1 per cent of economic output in 2015 after posting a deficit of 8.9 per cent the year before. In both cases, the deficit resulted from two successive capital injections extended to the cooperative banks. This year, the government is projected to generate a balanced budget expected to help it reduce government debt, which accounted for 108.9 per cent of the economy last year.

“Unless we regulate hiring and pay rises in a reasonable way like the one proposed, we shall face problems again sooner or later,” the finance minister said. “Apart from budgetary considerations, there are others such as social justice which make going ahead with this reasonable adjustment an imperative”.

Georgiades, who is scheduled to meet representatives of the workers’ unions at state-owned Cyprus Telecommunications Authority, widely known as CyTA, said that the government is currently preparing an alternative proposal on the future of the telecom.

The government withdrew its proposal to privatise the company which is continuously losing market share to private competitors last year when it failed to secure sufficient political support in the parliament.

While Georgiades declined to comment on what the new government’s proposal will contain he said that “in principle, we do not think that CyTA can remain the last telecom in Europe operating as an extension of the civil service”.
“It has to be transformed into a company and with a partial privatisation to attract a strategic investor,” he added.

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