A third of the state 2020 budget is to be spent on civil servants pay, with salary spending for the year projected to increase by 4.1% on 2019.
The increase to €2.87 bln is due to the Cost of Living Allowance (CoLA) payments and additions, as well as recruitment.
Following Cyprus’ exit from the bailout agreement with international lenders in 2017, the cost of civil servant salaries is to rise by €663 mln by 2022.
Salaries amounted to €2.42 bln in 2017 and they expected to reach €3.08 bln in 2022.
Total government spending is estimated at €9.21 bln in 2020 and 2022 estimated at € 9.89 bln.
According to the 2020 budget, expenditure on pensions and grants is estimated at €679.8 mln from €675.8 mln in 2019. In 2022 it will be €735.7 mln.
State benefits will amount to €1.47 bln from €994.9 mln in 2019.
In 2021 and 2022 they are projected to decline to €1.11 bln and € 1.10 bln respectively.
Fiscal Council president Demetris Georgiades told the Financial Mirror that if the increase recorded in the budget does not reflect a permanent trend in payroll rise, but rather a fix with salaries being reinstated to pre-crisis levels and filing of vacancies caused by the freeze of previous years, then a fiscal derailment will not be in the cards.
If, however, this trend continues for a period of more than three to four years, then the country will most likely face the danger of derailment from the fiscal path it has been on.
The Supreme Court has yet to rule on an appeal filed by the government over an Administrative Court’s decision in favour of civil servants who sued the government over salary cuts.
Georgiades said that a Supreme Court ruling validating the initial decision is manageable but poses a threat to the state’s long-term fiscal stability.
A lower court found that pay cuts imposed on Cyprus civil servants as part of an austerity drive in 2012 are unconstitutional.
It said the pay freeze, a 3% contribution to pensions, and a reduction in civil servants pay violated 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.
The Treasury Department announced that the total financial impact could reach €844 mln by 2023.
Georgiades 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 applies 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.”
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.
