Opposition parties voiced outrage yesterday with the government for apparently letting civil servants off the hook.

Under a deal reached between Finance Minister Kikis Kazamias and the trade unions, employees of the broader public sector will forego the increase in CoLA for the first six months of 2012.

CoLA, incorporated into the salary, is readjusted every six months. Only the projected increase of the current six-month period is to be temporarily withheld from state workers.

The government will resume payment of the calculated increases as of July 1, 2012. The withheld increase (calculated for the period July 2011 to January 2012) is to be eventually paid to state workers in January 2014, over and above the CoLA increase payable for January 2014. Simple mathematics shows that, whatever the CoLA adjustments in the intervening two-year period, by January 2014 state workers will have recuperated all their CoLA increases and will have lost no cash. In short, they will be deprived of the extra cash only for the period January to July 2012. In what is essentially a purely accounting exercise for cash-flow purposes, the government estimates this will save state coffers between €120 million to €140 million for the period 2012-2014.

It is also true, however, that the CoLA increase for this coming January is expected to be substantial, given the expected increase in taxes, including VAT. As it turned out, the government’s second austerity package was not tabled to the plenum yesterday. When Kazamias initiated talks with the unions, there was talk of freezing CoLA payments for two years, part of the second package of austerity measures. He had also proposed slashing state workers’ 13th salaries by 25 per cent this year. This, too, is now off the table. Despite operating under the threat of strike action, Kazamias got the unions to agree to a 10 per cent reduction in pay grades for newcomers to the broader public sector, though this will be incorporated into the 2012 budget which comes up for voting soon. The measure takes effect as of the beginning of next year.

Opposition parties, however, were left singularly unimpressed. DIKO MP Nicholas Papadopoulos, who chairs the House Finance Committee, said the government has “capitulated” to the unions, calling the CoLA agreement a “watered-down version” of a separate agreement for cutbacks struck between the government and parties in late July. “The government is behaving as if it has money to throw away. It believes it can continue to give it away on wage increases [for state workers].”

Papadopoulos reiterated his suspicions that the government’s real plan is to tax the private sector in order to fund pay rises for the public sector. “Right now, the idea of slashing the 13th salary rings like a bad joke,” he remarked. Likewise DISY deputy Averof Neophytou noted that the administration has backtracked on the majority of its pledges to consolidate public finances.

He said that Finance Minister had pledged to table to parliament a second austerity package by yesterday, containing some 14 additional measures involving spending cuts. In return, the opposition would consider passing a government bill for raising VAT from 15 to 17 per cent.

Given the government’s failure to deliver on its commitments to parliament, Neophytou hinted, the parties might not now consent to approving the 2 per cent VAT hike.

Parliament’s likely refusal to pass the VAT hike, when it comes to the plenum, would further complicate the government’s fiscal consolidation plans. The VAT rise was expected to raise over €300 million in revenues; without it, the administration would be forced to seek the cash elsewhere. Next week’s proceedings at the House Finance Committee and then at the plenum on Thursday, should be interesting. Neophytou wondered also whether the reported €2.5 billion loan from Russia, covering the government’s cash-flow problems for the next 18 months, may have dampened the administration’s desires to slash public expenditure and lean on the trade unions.

Meanwhile two bills aimed at bolstering the state’s ability to crack down on tax evasion ad tax avoidance, were not on the plenum’s agenda yesterday.

The government’s overall objective is to reduce the public deficit to below 2.0 per cent in 2012 - from a forecast exceeding 5.0 per cent this year – and to zero by 2013.

Kazamias has pledged to overhaul the CoLA payments system making it fairer, as higher-income recipients currently benefit the most from it.