Although the immediate cost of a Supreme Court decision in favour of civil servants who sued the government over salary cuts, is manageable, such a ruling poses a threat to the state’s long-term fiscal stability.
The Supreme Court is to rule over whether an Administrative Court ruling which found that pay cuts imposed on Cyprus civil servants as part of an austerity drive in 2012 is unconstitutional.
The lower court said the pay freeze, a 3% contribution to pensions, and a reduction in civil servants pay was in violation of article 23 regarding the protection of the right to property.
These austerity measures were imposed by a cash-strapped government that tried reign in debt as the economy went into meltdown.
Following the Administrative Court’s decision, the government filed an appeal with the Supreme Court.
A few days ago, the Treasury Department announced that the total financial impact could reach €844 mln by 2023.
Demetris Georgiades, Chairman of the Fiscal Council, said the state could cover compensations to civil servants involved in the lawsuit but would be in deep water if the Supreme Court’s ruling is applicable to all civil servants and is retrospective.
He said this would further accelerate the rate of increase of the state payroll, which would create future fiscal risks.
"The state payroll will be higher if more civil servants file cases with the courts, risks of derailment will be greater.” Already, he noted, the rate of wage increases is higher than that of state revenues.
Indeed, the Financial Risk Report accompanying the 2020 budget, states that court rulings over pay cuts are considered the greatest and most immediate potential fiscal risk.
Georgiades said the state needs to find ways to protect itself against such threats. “The state before going ahead with reforms should have studies made to determine what each civil servant should be paid”.
He said this can be done by measuring the necessity of each position compared to what is being paid in the rest of the EU for the same services.
Savings for the state deriving from reductions in earnings and pensions for 2018 amounted to €256.6 mln, while for 2017 the state saved €265.3 mln.
The Supreme Court is expected to deliver its ruling regarding the Government's appeal sometime this month.
