Economic Undertakings

Our point of view: the same old reluctance to control public spending is evident today

Presenting the state budget for 2022 to the Council of Ministers last Wednesday, Finance Minister Constantinos Petrides informed his colleagues that the public sector wage bill would increase by 3.2% (100 million euros) to exceed the bar of the 3 billion euros. It seems that the public wage bill, which represents more than a third of the state’s annual expenditure, is getting out of control again, without anyone expressing the slightest concern.

The strange head of the finance ministry, privately, admits that the government is going down a risky path, but politicians seem blind to the danger to public finances of a constantly growing public wage bill. Petrides attributed the increase to the payment of CoLA (automatic salary adjustment based on the cost of living index), increases in the salary scale and “increasing employment”, in a way diplomatic to say the galloping hiring of public employees.

This was confirmed by the statistical service which reported Thursday that the number of public sector workers increased by 2.4% (1,653) in the second quarter of this year compared to the corresponding period of 2020. Despite these increases, we keep hearing about understaffed government departments that cannot cope with their workload and provide decent service to people. The payroll may continue to rise, but the level of service remains as low as ever.

Petrides did not include the increase in the wage bill as a factor threatening the government’s economic plans for 2022. He cited the National Health System (Gesy) as one of the three threats because there could be ” excessive spending that could be caused by possible schema and Okypy malfunctions. This is part of the same problem. We have created a health plan that pays personal doctors exorbitant amounts (up to € 200,000 per year), just for patient registration, and had to increase the salaries of doctors in public hospitals because they complained. Nurses in public hospitals are paid almost twice as much as their colleagues in the private sector and, like doctors, are paid at overtime rate to work after 3 p.m.

Debauchery with taxpayer money took on new dimensions with Gesy. Abuse of the system by patients who demand constant medical examinations and tests, because they don’t have to pay, is another reason the costs are rising. Then there are private hospitals and clinics that operate on patients unnecessarily because they receive a higher rate per bed than for inpatients who do not require surgery. Is it any wonder that Petrides fears Gesy will derail the government’s economic plans for next year?

Another factor posing a danger to public finances was a surge in the pandemic that would negatively impact business activity, the minister said. An increase in Covid-19 cases, although nearly 80% of the population is fully vaccinated, was not something we could control, but the government would be in a better position to deal with the consequences of another business downturn if he did not have an inflated public wage bill and a national health care system with increasing costs.

The reluctance to control public spending, even when the red flags are raised, has been a traditional failure of successive governments. Nothing is done unless we are in crisis. We had a good few years before the pandemic, so the Anastasiades government has reverted to the lavishness of the past and is now unable or unwilling to do anything. He continues to hire more public employees, has refused to address the issue of steadily rising public sector wages, and has made no attempt to contain the Gesy spiral and the costs of public hospitals.

Even if we go through next year without a major fiscal crisis, that would not mean that we have averted the danger, only that we have postponed it for a year. A future crisis could be avoided if the government shows the political will to confront Gesy and the wage bill now. We know these are tough businesses and any decision would be deeply unpopular, but good government identifies future problems and deals with them before they get out of hand.

President Anastasiades could have rationalized the public sector wage bill, when Cyprus entered the aid program in 2013, but instead went to the Pasydy AGM that year and promised that public employees would not ‘would have to make more sacrifices. It is an opportunity that he chose to pass up because he was aiming for the next election. As he will not seek his re-election in 2023, he now has the possibility of imposing controls on the public wage bill, as part of the civil service reform for which the European Commission has set an end-of-year deadline. . This would benefit the country and reduce the number of possible threats to public finances in the coming years.

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