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Government needs a new economic agenda

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By Michael Olympios

A new debate has erupted in Cyprus between the trade unions and the Minister of Finance over the automatic wage indexation policy, better known as the cost of living allowance (CoLA).

After the disastrous agreement last year were the government agreed to adjust the entire amount of salaries and pensions of public employees at a cost of 1.2 bln euros, the finance ministry is apparently having second thoughts on the wisdom of that deal.

The European Commission, the IMF and the country’s Fiscal Council warned of the risks of this policy to fiscal stability.

It is as if everyone forgot the fiscal recklessness of the communist AKEL party that ruled more than a decade ago that, together with the irresponsible credit growth by the local commercial banks, led the country to the biggest economic meltdown since the Turkish invasion in 1974.

Now, the unions are trying to snatch back everything bad that they agreed to reform in light of the country’s rescue package by the ‘troika’ of the EU, the IMF and the ECB.

The Christodoulides administration needs to adopt serious policy measures and initiatives to address fiscal risks and drive growth and competitiveness.

Public and private employees should be given incentives to work past the current retirement age, but fewer days per week. This income should be taxed at half the going tax rate and allow the market to gain from their knowledge and experience.

Such measures will help the economy’s growth and productivity, while at the same time alleviate the enormous burden on the national pension Social Security Fund.

Second, the government should create a sovereign fund, perhaps with the listing of certain assets such as the telecommunication company Cyta, which is still 100% government-owned, but union led.

The fund should be listed and raise private capital as well to diversify in areas that Cyprus can create a competitive advantage by attracting and retaining talent and brains such as biotechnology, pharmaceutical, electronics.

Even a certain scale of manufacturing should be contemplated and provide incentives to European, but mainly third country workers to become gainfully employed in a sector that is currently considered dead and beyond reach.

Third, the government should address the serious demographic risk that is developing across Europe by drafting a comprehensive plan for new couples with EU citizenship and with the men having completed their army service to be provided with low cost housing with option to buy it in the future.

Without affordable housing many young couples delay both marriage and setting up a family, the foundation of every prosperous society.

Whether the president has the vision and the team to pull such a heavy policy agenda is another story. We believe that he can, but we are not sure of what his real priorities are.

 

Michael Olympios is Editorial Consultant for the Financial Mirror