Two central bankers, European Central Bank vice president Loucas Papademos and Cyprus Central Bank Governor Athanassios Orphanides, have rightly rung the warning bells saying that urgent measures need to be taken to maintain a healthy economy.
Papademos has warned that unless the automatic wage indexation system (COLA) is abolished, we will be paying out of our noses, while Orphanides has urged we put a cap on spending and look to revitalizing the ailing Social Insurance Fund otherwise VAT will be forced up to 25% from the present 15%.
Both are not unrelated, as they foresee troubled days ahead once we join the eurozone on January 1. Both call for radical changes and both want us to tighten our belts and move on.
All recent efforts to enhance the social insurance platform have failed, with the final straw being the botched attempt by the competent Minister to secure a CYP 20,000 bonus to third-child births in order to overturn the falling rate that, in turn, would help ease the pressure on the ageing problem.
In fact, the only solution for present-day taxpayers and potential pensioners 20 years from now is for the retirement and pensionable ages to be hiked to 65 years and later to 68, something no politician dares to discuss for fear of losing potential votes in the upcoming elections. Politicians have even been weak to stand up to the demands of the revolting teachers who want the age-cap set at 60 in order to ensure early retirement and more jobs for the boys.
The other anathema is the COLA, or ‘ATA’ in Greek, which was initially a social necessity to ensure the financial welfare of workers but was later transformed into a political necessity, with party leaders, MPs and even presidents using it as a leverage over trade unions to secure (or maintain) votes.
In the good old days when farmers and private sector workers outnumbered civil servants by four to one, wages were low and needed some measure of stability or even security, which came through the COLA. However, as the government workforce has grown to beyond the state’s own means, the only ones nowadays benefiting from the dreaded bonus are the civil servants, especially the ones appointed in the 1970s and early 1980s, who have now reached the upper scale of their wage levels and take home salaries three times that of private sector workers.
Calculating the wage indexation, inflation and the overly generous pay increases imposed by the collective agreements, a civil servants pay increase would come to no less than 12% a year. The only difference is that civil servants’ pay is not based on performance, which is why they are fighting to maintain the COLA and their fat rises.
If AKEL is genuine in its declarations in support of the working class, then it should first differentiate between the true and worthy labourers of this economy and the privileged class of civil servants. Only then can it justify diverting about 10% of the CYP 306 mln public surplus to the “vulnerable classes†or the lower-income workers.
By abolishing the COLA / ATA, the civil service sector reform will move ahead and it could be balanced with greater social benefits to the working classes.
