Debate Rages Over Controversial Austerity Measures

The House of Representatives has begun a three-day debate over a package of controversial austerity measures set for a vote in a plenary session on August 25th.

Most political parties with the exception of communist party AKEL are against the measures, which are widely seen as a left-wing strike at the heart of the private sector in a time of economic crisis.

The proposed measures include raising taxable income exceeding 60,000 euros a year from 30% to 35%, an increase on property taxes, and an increase in VAT from 15% to 17%.

Many analysts do not expect the package to pass as it currently stands after the Democratic Party (DIKO) said it will not approve it because it does not go far enough and does not deal effectively with the key issue of public sector pension reform. Democratic Rally party (DISY) spokesman Haris Georgiades said that it is well-known that parliament is expected rubber stamp the government's proposals, but that it has the right to amend or vote against them. The number of public employees has risen from 65,000 at the end of 2007 to 71,223 at the end of 2010 and it is clear that the public payroll has to be cut, he said.

But Finance Minister Kikis Kazamias and public sector trade unions have only agreed on a package which includes a 3% contribution from all government workers' salaries for the next three years. The measures have the approval of left-wing President Christofias who heads up a minority government whose strongest political support in the wake of the explosion at Mari naval base comes from the trade unions, which represent government employees.

Civil servants receive two pensions, and only contribute 3.4% instead of the usual 6.8% to one of them. Unwilling to give up their perks, civil servant trade unions PASYDY, PEO and SEK have pressured the government to agree to postpone pension reform and instead, increase VAT. These trade unions are currently considering taking industrial action amid resistance from political parties to their proposals.

In comments to state broadcaster CyBC, Nikos Tambas of the SEK union said that "we've suggested to workers to react strongly...with strikes. The workers have to decide this and we are in this process (of voting on strike action)." A PEO spokesman said that the package of measures they agreed to did not include working conditions; it only includes the contribution that public service employees will make to help the economy.

Strikes in the public sector would certainly add to growing insecurity about Cyprus' fiscal stability in the wake of downgrades by international ratings agencies and exposure to Greek debt. The EU has called for the government to implement immediate austerity measures and get the deficit under control, but the complicated political situation has hampered the progress of reforms.

Former government coalition members DIKO and EDEK left their partnership with communist party AKEL, citing differences over economic policy and the handling of the Cyprus problem. This has left a stark rift between the left-wing and the right-wing that is set to play out in the economic policy arena in the foreseeable future.

With Christofias in charge of the largely communist Council of Ministers and the opposition controlling Parliament, this legislation is the key test of which group has the real power.