The conflicting positions of the social partners involved in the Cost of Living Allowance (CoLA) negotiations and in the reactions to the proposed tax reform take a critical question out of the equation. Whether the average citizen, suffocating under the adverse social conditions in recent years, will feel any significant change in their economic situation?
In light of the on-going consultations, confrontations and sharp rhetoric put forward, Politis asked economists to analyse how the outcome of these realities will improve the daily lives of the working and middle classes, suffocated by social conditions in recent years.
The distortions
"CoLA will not solve the problems of social policy and it is in the state's hands to take support measures for vulnerable population groups. That can come through taxation," Marios Klirіnis tells Politis.
"CoLA has some distortions that need to be adjusted. You cannot receive CoLA because oil prices have increased, since the benefits end up with oil producers and the costs with the countries that import oil."
Secondly, he states, "we must take the impact of indirect taxes out of CoLA , because the purpose is to limit the consumption of products that have negative effects, e.g. pollutants, taxes on tobacco, etc." In some sectors, he also points out, if CoLA is imposed, it may hurt competitiveness, such as tourism where prices are determined by international competition.
"CoLA creates a distortion in the distribution of national income in favour of public servants, bank employees and the remaining 60% of the private sector that does not receive it," he adds.
The paradox
Michalis Florentiades states that the institution is an anachronism and will likely cause problems for the Cypriot economy.
"I consider it self-evident that employees' wages must be adjusted due to inflation over a medium-term horizon, so that their standard of living is protected and they don't become impoverished.
"This should preferably be done however either through collective agreements or in an annual review process when salaries are raised. Having an automatic adjustment mechanism is paradoxical, because it rolls the cost of unexpected inflation entirely and directly onto the employer," he emphasises.
"Such mechanisms, I believe, are better used in countries that have very high and unpredictable inflation of 5-10% per month, and not in developed countries that target inflation of 1-3%. I have the impression," he says, "that this particular confrontation stems from the fact that CoLA was an acquired right that following the financial crisis and the improvement of public finances, political balances may favour its reinstatement and not something that will benefit the economy."
Benefits high-wage earners
"Approximately 40% of the workforce receives CoLA . Out of those,, high-wage earners take the lion's share. In the public sector, in 2024, CoLA cost approximately €88 million. In 2025, the rise from 50% to 66.7% added another €48 million. The top quarter of earners received approximately €45 million. Therefore, clearly CoLA mainly benefits high-wage earners. And as such, it constitutes a significant distortion in its overall philosophy," Stelios Platis notes.
"CoLA does not replace the standard of living of high-wage earners, but adds to their savings, while it essentially punishes the lower-paid and undeniably the 60% who don't receive it," he emphasises. "For this reason, I am not opposed to the idea of CoLA for all low-paid employees, under strict conditions." For now, he suggests "adding CoLA to the national minimum wage, and increase CoLA for the lower strata."
"People who currently receive incomes below the tax-free amount will not see any change, in contrast to people of higher income brackets who are positively affected by the changes in tax brackets and deductions expected to be adopted relating to family composition, rent, insurance premiums and interest for the primary residence and expenses that promote the so-called green transition. These will reduce the tax payable," economist Tasos Giasemidis remarks.
"So people of lower income brackets can expect to see some positive changes in their incomes through CoLA ," he adds.
Middle class ignored
Platis points out that through the tax reform being promoted, the tax toolbox is not being utilised to address, through incentives and disincentives, the housing and energy crisis, to promote innovation and research, green development, digitisation and generally the transformation of Cyprus into a model state.
"The change in some tax indicators, combined with the minor increase in the tax-free threshold does not address the multiple crises that the middle class and vulnerable social strata are going through," he notes.
At the same time, targeted incentives and criteria are absent for the substantial support of a large number of critical social and economically vulnerable groups.