The administrative court announced on Friday that payroll reductions imposed on civil servants as part of an austerity drive in 2012 are unconstitutional, a decision that could, at best, cost the state some €200m a year.
The court said a freeze of incremental pay rises, a 3 per cent contribution to pensions, and a reduction in civil servants’ pay was in violation of article 23 regarding the protection of the right to property.
The state has 42 days to appeal the decision.
In its first official reaction, the government said it would study the decision together with the state Legal Service to see how to address the matter.
“It is a decision over an especially serious matter with great consequences for the country,” government spokesman Prodromos Prodromou said.
He said President Nicos Anastasiades and Finance Minister Harris Georgiades have been in touch with the attorney-general who will be studying the case.
Prodromou said the government and the Legal Service were examining the possibility of appeal and whether there was a need to adopt any measures until it was adjudicated.
“In any case, the government will exhaust every possibility to ensure two highly important objectives: the stable course of our economy and society’s sense of justice.”
The fiscal consolidation measures affecting exclusively the public sector passed by the parliament already before Cyprus agreed the terms of its 2013 bailout with international creditors included a general wage and hiring freeze, a 10 per cent drop in hiring salaries, and a permanent up-to 12.5 per cent reduction in pay.
On top came an extraordinary levy on wages in both the private and public sector which was phased out in 2016.
The measures helped reduce the government’s staff expenses to €2.2bn in 2015 from €2.9bn in 2011.
The court ruled that as in the case of pensions, “salaries too constitute property according to article 23 of the constitution.”
“Deprivation or limitation of this right, according to the provisions of article 23.2 of the constitution shall be made except as provided in this article,” the court said, quoting the constitution.
The court said the article did not include the reasons cited by the state – public benefit and public interest – as justification to curtail the right of the applicants to property.
A senior finance ministry source told the Cyprus News Agency that it was premature to estimate the fiscal impact of the decision.
The unnamed source expressed optimism that the financial burden will be manageable.
“No calculation can be done at the moment because the decision must be interpreted in co-operation with the Legal Service – what the court decision means in practice and when and how it is applied,” the source said.
It is considered certain that the state will appeal the decision at the supreme court along with a request of suspension pending the appeal.
Another source said ministry believes the decision applies only to those who went to court, something that will limit the cost considerably.
If that is the case, according to the source, the cost will be around a few million euros of compensation to those who went to court and some €200m per year as the state would have to reinstate full pay and benefits to civil servants.
It is understood that compensating all civil servants for lost income would cost north of €1bn.
The state had already decided to start returning the lost income to civil servants gradually, a process that will be completed by the end of 2022 or the beginning of 2023.
Attorney-general Costas Clerides said his job was not the potential fiscal impact but to study the three decisions and advise the government about the potential of an appeal.
“We ought to study the decisions so as to advise whether an appeal should be filed and the possibility of having the execution of the decisions suspended until the appeal is adjudicated,” he said.
The AG said they will look into asking the supreme court to expedite the case due to its importance. He said they would also seek that the appeals are judged by the supreme court’s full bench of 13 judges.
Clerides said he has been in touch with the finance minister and the aim was to convene a broad meeting of all involved in the next few days to discuss the matter.
The court decision was received with despair by the private sector.
Employer organisation OEV said the decision sealed the discrimination between the public and private sectors.
It said the decision established that even when the state is essentially bankrupt, every crisis, danger, or threat, will be shouldered by the private sector.
“The people who have not lost any sleep over the nightmare of unemployment during the years when businesses closed in their hundreds and private sector staff were sacked in their thousands are now taking it all back. Everything. To the last penny,” OEV said in a statement.
The organisation called on the government and parliament to assess the situation and rectify it if they share the disappointment of the business world.
Ruling Disy said it respected the decision but will wait for the supreme court to rule on an appeal before commenting.
The party recommended however, that it would be wise for the finance ministry to examine the possibility of having to apply the administrative court’s decision.
“It is not a coincidence that the chairman of our party, Averof Neophytou, has repeatedly warned no to take for granted the stability that has been achieved,” the party said.
Similarly, Diko said it will study the decision before taking a position.
“What is very important however, and what we expect immediately, is a concrete proposal from the government on the potential arrangements that must be done in light of this decision, which obviously affects the course of public finances.”