By Dr. Jim Leontiades
Cyprus International Institute of Management
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Compared to the major European countries Cyprus has little in the way of the usual class divisions. We have no hereditary aristocracy. Still less is there the sort of class struggle between a privileged capitalist class and workers as predicted by Karl Marx. Nevertheless, in Cyprus we have the beginnings of our own unique class division between workers in the public sector and those who are not.
The fact that the public sector enjoys a number of privileges regarding working hours, job security and pay scales has hardly been a secret. But it is only recently that the full magnitude of these privileges as regards retirement have been so clearly documented.
The Cyprus Chamber of Commerce and Industry has calculated that the average retirement benefits of employees that have worked in the public sector are almost five times that of workers in the private domain. The CCCI finds that public sector workers average 21,603 CYP per annum while private sector workers average 4,471 per annum. At the same time, public sector workers contribute less and retire earlier at 63 years of age. Moreover, pensioners in the public sector are entitled to draw unemployment pay for the first six months of their retirement.
All this comes hot on the heels of indications from a number of sources that our social retirement fund is in trouble. The recent report of the International Monetary Fund, commenting on the “mismatch of generosity” between public and private pension arrangements, makes the point that not reforming our present social security now will mean subsequent problems with an impending pensions fund shortfall. The prediction of the Fund is that this would lead to changes that would “reduce output growth and economic welfare for decades”. The IMF chief also points out that the effective retirement age of public servants is 57 (since they can retire early if they wish and without penalty). The IMF draws the obvious conclusion – without the necessary reform there would need to be a sharp increase in taxes to pay for pensions.
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Some Workers Subsidizing Others
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Both the IMF and the Cyprus Chamber of Commerce and Industry arrive at the same conclusion: unless we change course there will be an inevitable increase in taxation to pay for the looming pension fund deficit. Taxpayers (most of who do not work in the public sector) would have to foot the bill. In other words, those that receive higher pensions would wind up subsidized by those that receive less.
Ironically, it is the unions and the parties of the left that have been most vociferous in protecting the current pension privileges of the public sector. In this, they are simply adhering to their traditional role as protectors of the “working class”. This has become a knee jerk reaction to any suggested threat to workers benefits. But perhaps they have been too successful in this instance. In the old days, it may have been permissible to think of workers interests as being fundamentally the same. This is patently not the case in the current pension situation. We are not witnessing the old conflict between worker and capitalist. In this case, the interests of one category of worker are basically counter to those of another. In defending the pension rights of public sector, they risk alienating others with far smaller pension benefits. Moreover, they may find themselves in the awkward position of being on the side of privilege.
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Temporary Solutions
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A happy solution would be for all employees to receive the same rights, ie. the same rights as currently employed by the public sector. Unfortunately, this is a long way from being realistic.
According to a recent report of the European Statistical Agency (Eurostat) Cyprus has had the highest increase in the tax to GDP ratio of any country in the EU. That simply means that taxes are growing faster here in relation to our income than anywhere else in the EU. We have been able to finance increased expenditure on the public sector through higher tax revenues. This is not a long term solution. Much of our success in raising tax revenues has been based on improved tax collection and other “one off” measures, such as tax forgiveness on repatriated funds. We cannot depend on such temporary palliatives in the long term.
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