The Cypriot government and the coalition parties, ruling AKEL and Democratic Party (DIKO) have agreed on a set of measures aiming at rationalizing the public finances, Government Spokesman Stephanos Stephanou announced on Friday.

The measures will be submitted to the meeting between the President of Republic and the President of the parliamentary parties for the economy, scheduled for July 8.

“The aim is to achieve consensus and agreement for the assumption of a joint responsibility to tackle the consequences of the global financial crisis and the consolidation of the Cypriot economy,“ Stephanou said, announcing the measures.

According to Stephanou, the fiscal targets include the drafting of a three-year programme for the reduction of the budget deficit, with a focal point the control of public spending on the basis on Cyprus` obligations to the EU. He added that “the medium-term fiscal framework will be submitted for approval along with the 2012 state budget.“

As regards the containment of public expenditure, Stephanou said the agreement will expedite the abolishment of semi-governmental organizations that have fulfilled their life cycle, the abolishment of vacant job positions in the civil service that are not considered as necessary.

The agreement also includes the reduction of the civil service employees, with the adoption of a policy providing for only one employment for every four retirements, aiming at reducing the number of civil servants by 5,000 within the next five years, as well as the notion of interchangeability in the civil service.

Furthermore, the plan envisages a 5% reduction of overtime payments in 2011 compared to the overtime expenditures provided for in the 2011 budged and a 20% reduction in 2012 compared to 2011.

The government and the coalition parties also agreed on the reduction of the salaries of the newly employed in the civil service, as well for the commencement of the dialogue for the fairer distribution of the Cost of Living Allowance (COLA).

With regard to the pension system, the agreement includes the inclusion of newly employed civil servants in the Social Security pension fund instead of the Government Employees pension scheme, as well as the calculation of the retirement benefit and the pension according to the average of the salaries of the last thirty months instead of the final salary.

The proposed measures on the pension scheme also include a civil servants contribution to the pension scheme, the readjustment of the contribution rate to the fund for widows and orphans, as well the abolition of the pensions` automatic adjustment for employees who benefit from general increase to the civil servants salaries.

Stephanou noted that the Government and the coalition parties will reach common agreement by September concerning the targeting of social transfers and allowances and the modernization of the public allowances system.

In relation to the measures for the increase of public revenues, Stephanou said the agreement includes the completion of the discussion of the bills pending for the tackling of tax-evasion, the review of a tax on real estate for the next three years, the introduction of a levy for all registered companies and the introduction of a tax levy on the benefits from the town planning zone changes for commercial development.

Stephanou said the measures requiring legislative approval will be submitted to the Parliament whereas the other measures will be discussed with the social partners.