Employee compensation in Cyprus is set to rise by about 6.9 per cent in 2025, reaching €4.1 billion, up from the €3.9 billion recorded during 2024, according to the Finance Ministry.

The increase, which will lift public sector wages to 11.8 per cent of GDP, reflects a series of automatic and contractual adjustments already locked into the state payroll. 

According to the draft budgetary programme for 2026, submitted to the European Commission on 15 October, the rise is driven by the CoLA provision, which contributes an estimated 1.87 percentage points, followed by higher salaries and wages linked to the state health services organisation (Okypy) contract, adding around 1.1 percentage points.  

Annual increments account for a further 1 percentage point, while increased spending on tips contributes about 0.8 percentage points.

The 1.5 per cent general increase introduced in October 2024 adds an estimated 0.4 percentage points.

Compensation of employees is expected to grow at a slower pace in 2026, rising by 4 per cent to €4.3bn.

This reflects the forecast of zero inflation in 2025, which keeps the CoLA unchanged, and the fact that the 2024 general increase will no longer have a base effect.

As a share of GDP, the wage bill is projected to remain broadly stable, reaching 11.8 per cent next year before easing to 11.7 per cent in 2026. 

Even so, the ministry’s latest figures point to a significant breach of the EU’s new fiscal rules.

Primary expenditure is expected to rise by 7.9 per cent in 2025, overshooting the annual ceiling of 6 per cent by 1.9 percentage points and diverging from both the Fiscal Council’s recommendation and the government’s commitments under the national plan.

The pressure comes as discussions continue over the future of the CoLA, with unions seeking a higher payment rate from early 2026 and a phased increase over the following 18 months.  

Since salaries form part of primary expenditure, alongside pensions, ministry operating costs, subsidies, social benefits and public investment, any agreement would add further weight to an already expanding payroll. 

Speaking on Monday, the president of the Fiscal Council Michalis Persianis, referring to the broader macroeconomic picture, remarked that “people tend to make mistakes when conditions look comfortable”, signalling unease over the current trajectory.  

His remarks followed an earlier intervention on October 13 during the opening of the 2026 budget debate, where he described the ColA as “an inflationary burden on the economy”.  

As was mentioned in Politis, invited by Disy MP Harris Georgiades to outline the Fiscal Council’s position on the CoLA, he said payroll costs were rising without any corresponding improvement in the volume or quality of public services.

He also mentionedthat the medium-term fiscal framework had not accounted for a potential CoLA agreement, adding that although the immediate impact for 2026 may be limited, “it is an issue that continues to put pressure on the payroll”.