Fiscal Council warns Cyprus public wage bill is straining state budget

Nicosia, Cyprus. The Fiscal Council has warned that the public wage bill remains a major strain on the state budget, even as it described the economy as broadly resilient. Presenting its annual interim report, chairman Andreas Charalambous said government expenditure continued to exceed EU limits, with public sector employment costs a central driver.

Payroll costs and staffing rise

Compensation for public employees is projected to have reached about €4.1 billion last year, up from €3.9 billion in 2024 and equivalent to nearly 12 per cent of GDP.

General government payroll expenditure rose from €3.17 billion in 2022, a cumulative increase of about 38 per cent over three years. The workforce grew from 66,287 to 71,675 employees over the same period, while local authority staff numbers rose by 17.6 per cent.

Allowance adds to pressure

The council said automatic payroll mechanisms accounted for much of the increase. The cost-of-living allowance, or CoLA, has moved towards 80 per cent restoration under an agreement between the state and unions and is due to rise to 90 per cent from July next year.

CoLA payments increased from €42 million in 2022 to €199 million last year. Their share of basic salaries rose from 3.5 per cent to 15.3 per cent.

Charalambous said calculating the allowance as a flat percentage of salary gives higher earners disproportionately larger sums and makes the wage bill less flexible. The council did not propose abolishing CoLA, but recommended paying it as a capped fixed amount and linking further pay rises to productivity.

“For the Fiscal Council, it is important that expenditures keep pace with economic growth,” Charalambous said. He added that strong state revenues had so far masked the scale of the pressure.