Filenews 22 December 2025 - by Theano Thiopoulou
Society is shouldering an increasing financial burden for the maintenance of the state machine, which, however, seems to be gradually becoming more and more impossible to offer the required services and deliverables, the Fiscal Council indicates in the 2025 report, but also noting other vulnerabilities. A four-pronged concern therefore arises, according to the report, which is based on the fact that:
• the cost of the state increases,
• the quality of the state's services is not improving but rather declining, and
• the large-scale and high-cost needs of the coming years are not addressed, while
• The vulnerabilities of the economy increase in the medium term.
The Fiscal Council in its 2025 report notes "an important dimension of the allocation of expenditures is the need to improve the efficiency and wider quality of the state machine. It is estimated that current expenditures, intermediate consumption and broader operating costs of the Republic continue to grow faster than inflation, but these increases do not translate into improved services," it said. The report points out that "a typical example is the operating costs of offices, which record persistent increases, not only during the five years until 2028, but also in previous years, thus forming a long-term trend. In fact, the proposed reduction during the two-year period 2027-2028 is not convincing as:
(a) the specific reductions in the last years of the PMP are standard practice, and the revision can be taken for granted in the light of the experience of the many previous years and
b) no planning, planning or actions are identified to contain specific expenses. In addition, based on the trajectory of expenditure, the evolution of expenditure cannot be attributed to non-recurring circumstances (e.g. Cyprus Presidency of the European Council)".
The Fiscal Council states in the report that a second dimension concerning expenditure is related to the prioritization given to various categories of expenditure.
"In relation to the ongoing pressures on transport, for example, the 2026 budget and the 2026-2028 PMP, and in spite of the references made in the strategic planning of the competent Ministry, development spending is focused on the expansion of the road network, with the adoption and substantial expansion of public transport not easily identified in expenditure planning.
Similarly, as far as the increased pressures on the water sector are concerned, no expenditure plans are identified that change the existing regime. The same happens in the majority of environmental, and especially climatic data."
There is no serious reversal of the facts
The agreement on the concession of ATA does not radically overturn the fiscal data, the Fiscal Council indicates, and the volume of the increases concerns 2027 (€106 million) and 2028 (€103 million). The total increase in personnel costs for the same period amounts to 5.01%, while the effect of the ATA corresponds to an overall expenditure increase of 1.8% for the three-year period 2026-2028, compared to the budget under consideration, the 2025 report states. "Thus, given the estimates of low inflation, the ATA rates remain limited, especially for 2026, the year for which the 2025 inflation is used, which is estimated at 0.2% (with an ATA rate of 0.16%).
The ATA rate is expected to be higher, at 2.5% and 1.9% for the years 2027 and 2028 respectively, during which the ATA will be granted at 100% of inflation. However, the continuous increases in the cost of the payroll should be a cause for concern, especially in correspondence with the inability to improve the efficiency of the state machine, which offers the same services, at a higher cost for society." The Fiscal Council concludes that "there is no serious reversal of the data concerning the course of the debt, but it becomes more fearful, and in all likelihood, out of track, the possibility that the state payroll will be kept below the limit of 29% of total expenditures over the time horizon of the PDP. This fact burdens the state more, in terms of its inelastic expenditures (of which about 1/3 is personnel costs) and exacerbates the inadequacy of fiscal space for manoeuvring, policies, interventions and other discretionary policy expenditures."
