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Our View: A parasitic type of reward system

PROBABLY the biggest mistake committed by the Anastasiades government after Cyprus had entered the assistance programme in 2013 was its failure to properly reform the public sector payroll. This was an ideal opportunity to reduce public employees’ wages, re-evaluate the generous incremental pay-scales and scrap the absurd cost of living allowance, thus putting the public payroll on a healthy basis for the future.

Instead the government imposed temporary pay cuts until the end of 2016 and came up with the idea that the increase of the public payroll would not exceed the rate of growth of nominal GDP. So in 2017, apart from wages of public employees returning to pre-2013 levels there will also be across the board pay rises in the region of 2.2 per cent. Given that the growth rate is forecasted to reach 2.7 per cent this year, Pasydy could seek bigger increases.

The director of the public service personnel department tried to explain the complicated way in which the increases would be calculated at a meeting of the House finance committee on Monday. While the new method might be an improvement on the old regime, by which apart from the guaranteed annual pay incremental and CoLA, Pasydy would also negotiate an across the board pay-rise for all employees, it is not economically sound.

It completely ignores productivity increases in the sector, while rewarding public employees for high output of the private sector which drives growth. So if there is a bumper year for tourism like now, public employees who had nothing to with it – productivity in their sector may have declined – will be rewarded for it. But the law, currently being discussed at the House, has no provision for a reduction in wages in the event of a contraction of the economy, which cannot be ruled out in the future. At worst, pay rises would be zero.

So if there is a period of sustained growth, public employees will see their wages climbing higher every year, even if productivity is in decline. It is a parasitic type of reward system as public employees would see their earnings increase thanks to higher productivity and investment in the private sector. But this seemed the best the government could come up with given President Anastasiades unwillingness to make the 2013 pay cuts – which were significantly smaller than those of the private sector – permanent. In fact with the return of public wages to pre-2013 levels the gulf between public and private sector wages would be greater than ever before.

This would be the main achievement of the government’s much-trumpeted reform of the public payroll.

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