Cyprus austerity measures watered down, delayed to Budget 2012

The package of austerity measures agreed to between the political parties and President Demetris Christofias have been watered down under union pressure and split into two, the first part to be tabled before parliament on Thursday, giving the government time to negotiate the rest in time for the Budget 2012 debate later this year.
The news did not come from the new finance minister, but from the Akel General Secretary Andros Kyprianou who appealed to all social partners to accept the first package in order to shape the second package.
The political parties had initially agreed to a set of measures with President Christofias last month, but when the two main trade unions, Peo and Sek, and the militant civil servants union Pasydy got wind of the sacrifices that government employee would make, they backtracked on pledges dating back more than a year.
In order to reduce the government deficit, the only options available are to cut back on spending, and in particular on the civil servants’ payroll. Furthermore, civil servants will be asked to contribute the same 6.8% as private sector employees to the near-bankrupt Social Insurance Fund, in order to ensure the Fund will be able to pay out pensions in a few years’ time. Civil servants currently contribute only 3.4% to the Fund, but enjoy equal benefits as all other workers.
It is widely believed that the government would rather increase taxes rather than upset the public sector workers, who number nearly 70,000, who often use their collective power to blackmail incumbent administrations in the run-up to elections.
Instead of cutting the government payroll, as all the opposition parties have called for, the Christofias administration wants to hike VAT from 15% to 17%, slap a 1 percentage increase on the base corporate tax, raise income tax to 35% for high earners above 70,000 euros a year, increase the tax on property, especially large property owners and developers, as well as increase the tax on deposits from 10% to 15%.
It has already slapped a 3% levy on rents which is allocated to the Special Defence Fund. Ironically, this was introduced on July 1, days before the deadly blast at Mari naval base which was caused by poor administration and lack of funds to protect the 98 containers laden with munitions.
Finance Minister Kikis Kazamias met with employer organisations (KEVE and OEV), followed by unions on Tuesday, who also had a meeting with president Christofias before the package of measures is put to the House Finance Committee Wednesday noon. If approved, it will be put to a vote at Thursday’s plenary session.