Cyprus state payroll on unsustainable path, warns Averof

Former Disy leader Averof Neophytou has argued that the Cypriot economy is currently being undermined by an unsustainable surge in the state payroll which could otherwise be used to fund 15,000 affordable homes.

In an extensive piece of analysis, Neophytou stated that the size and cost of the state machine have always been a “black spot” on public finances but the recent growth is unprecedented in the history of the Republic.

He pointed out that even in the years leading up to the 2013 economic disaster the increases were more modest with the payroll standing at €2.86 billion at the end of 2012.

Comparing that era to the present he noted that between 2008 and 2012 the total increase was €348.00 million or 13.8 per cent.

In contrast he described the current trajectory under the present government as “particularly alarming” with costs rising from €3.16 billion in 2022 to €3.87 billion by the end of 2024.

This represents a jump of €709.00 million or 22 per cent in just two years which he believes demonstrates a lack of fiscal control and a trend that “not occurred before” since the country’s founding.

According to Ministry of Finance projections the state payroll is expected to reach €4.89 billion by 2028 which Neophytou calculated as an increase of €1.72 billion or 54 per cent over a five year period.

He warned that “this is not sustainable” and that the projected increase is four times larger than the one that previously led the country into a memorandum of international creditors.

Neophytou further cautioned that these government estimates were based on a cost of living allowance of 67 per cent rather than the 100 per cent rate due to be implemented by 2027.

Consequently he predicted that the actual state payroll will likely exceed €5.00 billion by 2028.

He expressed frustration that despite the digitisation of the public sector which should have reduced the need for personnel the size of the state machine continues to expand.

Employment in the broader public sector increased by 3,375 people or nearly 5 per cent between the end of 2022 and 2024 reaching a total of 75,353 employees.

To address this he proposed a legislative provision or even a constitutional amendment to ensure that state payroll increases do not exceed the previous year’s economic growth rate.

He argued that “national interest imposes” this requirement especially since the payroll is expected to grow by 8.2 per cent in 2025 while the economy is only projected to grow by 3.1 per cent.

The veteran politician stressed that “money exists, but it is being lost” through the lack of rationalisation in state spending.

By limiting the growth of the state machine to the rate of economic expansion he estimated that €710.90 million could be saved in 2026 alone.

He suggested that these specific savings could be redirected to build 4,000 residential units to provide citizens with affordable housing.

His projections show that further savings of €858.10 million in 2027 and €1.00 billion in 2028 could fund an additional 10,900 homes.

In total he argued that 15,000 affordable housing units could be constructed over three years which would be equivalent to “an entire suburb in every city.”

Over a five year period between 2023 and 2028 Neophytou calculated that total savings would amount to €3.90 billion.

He invited the public to consider how many reforms could be implemented or how much public debt could be reduced with such significant resources.

As an alternative use for these funds he suggested that the state could grant €10,000.00 for every birth to give households “financial breath” and tackle the demographic problem.

He also proposed that the state could provide up to €50,000.00 in financial support for every graduate wishing to start their own business covering all sectors of economic activity.

Neophytou called for a “small, flexible public sector” that uses technology and digitisation to serve the public without delays or hardship.

He insisted that the state should focus on its supervisory role and cooperate with the private sector through the purchase of services where necessary.

By not filling every vacancy created by retirements and training existing staff in new technologies he argued the state could offer better pay to current workers without risking a financial “derailment.”

Finally, he argued that while the process of reducing the number of public employees will take time the foundations must be laid now to create a sustainable state machine.