In Cyprus we have always laboured under the illusion that the State has innate wisdom and we demand it to interfere in all aspects of our life, like a caring parents do for their underage offspring. On the rare occasion it does not, there are indignant articles in the media asking ‘where was the state,’ while opposition politicians attack the government of the day for allowing the state to take a back seat.

These high expectations still exist despite the poor results over the years, and there are still demands for state intervention in most things. We have witnessed the mess the state can make when it interferes in industrial relations, which should never have been any of its business. It sets the social insurance, Gesy and other contributions, the minimum number of holidays, pregnancy leave, minimum wage etc by law, but that is where its involvement in labour issues should end.

It should never, however, become directly involved in the labour market as it has been with the Cost of Living Allowance (CoLA), which is a big mess of the government’s making. For months, unions and employers’ groups have been at loggerheads because they cannot agree on the level of increase in the calculation of CoLA, which workers would benefit from it, and which businesses would have it in place. Since July, the government has been unsuccessfully acting as a mediation service.

On Friday, a six-hour meeting attended by representatives of union federations and employers’ organisations, in the presence of the ministers of finance and labour, again failed to produce an agreement. Earlier in the week there were separate meetings of the ministers with each side. Although some convergences were reported after Friday’s marathon session, the chamber of commerce (Keve) and the employers’ federation (Oev) will meet Tuesday to decide how to respond to the proposals made by the ministers.

According to news reports, the main demands of the unions – 100 per cent of CoLA as opposed to the current 67 per cent for everyone who is entitled to it, including those on high wages – will be gradually implemented over the next 18 months. It will be paid once a year, a ceiling of four per cent was set with a requisite of positive growth in the previous year.

Two sticking points remain. Unions reportedly want CoLA incorporated into the minimum wage every year, while employers want this every two years. The second point of dispute exists only because the state is involved in the mediation and relates to a proposal of counter measures that is beyond belief. It makes no economic sense and appears to have been thought up by the government as a way of persuading employers to give the unions what they want.

Counter measures would reportedly involve tax allowances to employers that paid CoLA. This was thought of as an incentive to encourage employers to introduce CoLA, if they were not paying it, and for those paying it to give the full 100 per cent. One press report claimed employers were offered an allowance of 15 per cent (of something or other) but reportedly wanted 50 per cent of something or other.

In other words, the taxpayer will pick up the bill for CoLA in the private sector as well as in the public sector, not because CoLA is necessary (it causes only harm to the economy by fueling inflation) but because the state intervention requires a face-saving solution for the mess the government has created.

The fact is that CoLA, outside the public sector, should not be the government’s concern or responsibility. If the government wants to pay public employees 100 per cent CoLA, it is free to do so, but it has no business backing union demands for higher CoLA in the private sector. This should have been left to employers and unions to decide on their own. Nor did the president have any moral or political authority to announce his ludicrous proposal of ‘CoLA for all’ at a time when 70 per cent of the private sector did not pay it. By what economic logic did he make this proposal?

This economic cluelessness and costly populism, which have negative long-term consequences, can be avoided only if the state stays out of disputes in the private sector. Our politicians need to understand that the market economy functions much better when they are at arm’s length.