Filenews 25 October 2025 - by Angelos Nikolaou
An important financial breath for the municipalities is the Government's decision to approve the granting of a total amount of €27 million, after consultation between the Ministry of Finance and the Ministry of Interior and the Union of Cyprus Municipalities.
According to a letter from the Minister of the Interior Konstantinos Ioannou to the president of the Union of Municipalities, sent yesterday, the Ministry of Finance has no objection to the concession: €12 million for 2026, against the loss of revenue recorded by the Local Authorities from the abolition of licensing fees, and €15 million as a specific purpose sponsorship for the maintenance of roads of primary importance for 2026.
The allocation of these funds, according to what is communicated in the letters of the two ministers, will be given in two phases:
The €15 million will be included in the 2025 Amending Budget, which will be submitted for approval in November, so that it can be paid before the end of the year.
The €12 million to cover the losses from the licensing fees will be granted within 2026, either from the reserve or through an Amending Budget.
The Minister of Finance, in his letter to the Minister of the Interior (October 22, 2025), clarifies that this arrangement does not constitute a permanent settlement, but applies exclusively to 2026, with the control and distribution of the amounts being done on the basis of documented evidence per municipality.
Clarifications on the 40% limit on salary expenses
In the same letter, the Minister of the Interior also refers to the sensitive issue of how to calculate the 40% limit for the salary costs of municipalities, as a percentage of their total expenses.
The Ministry of Finance reaffirms the position that capital expenditure should not be included in the calculation of the percentage, in accordance with article 92(4)(d) of the Municipalities Law. However, it is emphasized that there is a possibility of exceeding the limit, with the approval of the Ministers of Interior and Finance, in the context of a transitional period ending on January 1, 2028, with the possibility of extension until June 30, 2029.
Mr. Ioannou emphasizes that there is no intention to disrupt labour relations and that the Government remains open to dialogue with the Union of Municipalities and the Ministry of Finance, in order to promote an amending regulation that will definitively resolve the issue.
To this end, he continues, "the Ministry of the Interior, as it has proven in practice in the past, is ready to engage in a productive dialogue, both with you and with the Ministry of Finance, with the ultimate goal of submitting an amending bill as soon as possible, for a final resolution of the issue."
The Union of Municipalities, in recent years, has been asking for the assurance of financial balance after the loss of revenue from the reform of the Local Government. At the same time, the prepayment of the sponsorship for the maintenance of the roads will allow the municipalities to plan road improvement projects for 2026 in a timely manner.
With these two decisions, the state is attempting to consolidate a climate of cooperation and economic stability in view of the full implementation of the new institutional framework of Local Government.
