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Public sector wages remain the uncomfortable truth behind Cyprus’ 2026 state budget, which is heading for a final vote in the House of Representatives on Wednesday and is widely expected to be approved.
While the economy continues to perform well and shows resilience to external shocks, the cost of running the public sector, particularly salaries, pensions and gratuities, keeps climbing. According to Kathimerini's Panayiotis Rougalas, personnel expenses are set to rise to €3.77 billion in 2026, up from €3.62 billion this year, and are projected to reach €4 billion by 2028.
Overall government revenues for 2026 are estimated at €16.4 billion, a 4.5% increase from 2025, while expenditures are expected to rise by 5.3% to €15.3 billion.
Fiscal Council President Michalis Persianis has warned that, despite the positive outlook, Cyprus needs to stick to a cautious fiscal approach. He pointed to uncertainty linked not only to global developments but also to domestic policy decisions, including tax and pension changes, cost-of-living adjustments, VAT differences, energy infrastructure projects and compensation for natural disasters.
Operating expenses are expected to jump by nearly 12%, while transfer payments, including social benefits and health and social security contributions, will also increase. Capital spending and EU co-funded projects, however, are set to decline slightly.
Despite repeated references to the need for restraint, the Parliamentary Finance Committee did not directly address the rising cost of personnel in its final report, focusing instead on broader spending trends.
The budget was prepared under new EU fiscal rules that limit how fast government spending can grow. Even so, public sector wage costs remain one of the biggest and fastest-growing pressures on state finances.
Why this matters
Because this isn’t just about spreadsheets and parliamentary votes, it’s about how much room the state has to breathe when things go wrong.
Public sector wages are one of the few costs the government can’t easily cut. Once they go up, they tend to stay up. And as they take a bigger slice of the budget every year, there’s less flexibility to deal with crises, whether that’s another economic shock, a natural disaster, higher defense needs, or pressure on the health system.
It also matters because rising wage bills limit where public money can go. More money for salaries often means less for infrastructure, housing, education projects, or EU-backed investments that actually grow the economy.
Finally, it matters for fairness. While the economy is described as strong, many households are still feeling squeezed by the cost of living. When public sector pay keeps rising while private sector wages lag behind, it fuels frustration and a quiet but growing debate over who is really benefiting from economic growth.
In short: the budget will pass. The economy looks solid. But the choices being locked in now will shape how prepared, or exposed, the state is in the years ahead.
