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Wednesday 13 December 2017

Dan White: Don't raise public sector pay, instead cut USC for all of us

Jack O'Connor
Jack O'Connor

Jack O'Connor, president of the country's biggest trade union SIPTU, said over the weekend that he "expected" the government to concede increases in public sector pay when talks between the Government and trade unions resume in May.

 Under the terms of the Haddington Road Agreement public sector pay remains frozen until the end of 2015.

With the public finances improving as the economy begins to recover, the trade unions are already preparing their case for public sector pay increases in 2016. It is of course a coincidence that this is also a general election year...

But, hang on a minute. Despite the cuts which the Government forced through during the economic downturn, public sector pay remains much, much higher than private sector pay.

 

anthems

The most recent figures form the CSO show that average weekly earnings in the public sector were €910.87 in the final quarter of 2014.

This was 41pc higher than average private sector weekly earnings of €643.44 for the same period.

And it's important to remember what the CSO earnings data doesn't include: the gold-plated, index-linked pensions enjoyed by most public sector workers.

Meanwhile, half of all private sector workers have saved nothing for their retirement and even most of those who do belong to pension schemes have seen their previous final salary schemes replaced by far less generous defined contribution schemes.

Not alone is Irish public sector pay much, much higher than Irish private sector pay, it's also totally out of whack with what public sector workers receive in, for example, our neighbours in the UK.

The latest figures there show that average weekly public sector pay in the UK was stg£496 (€679) in January 2015. In other words, Irish public sector workers are 34pc better paid than their UK counterparts.

The contrast with private sector pay could not be greater, with average private sector pay in Ireland actually being 2.5pc lower than is in Britain.

So how should the Government respond to trade union demands for public sector pay increases?

Public Expenditure Minister Brendan Howlin has already moved to dampen expectations, cautioning that there would be no public sector pay "bonanza".

All well and good but will the Government be able to hold the line in the run up to next year's general election?

With the domestic economy having grown by over 5pc in 2014 and a further 5pc growth being predicted for 2015, the Government suddenly finds itself in the unexpected position of having more cash on its hands than previously expected. Tax revenue came in €1.24bn ahead of target in 2014 and by a further €345m for the first two months of 2015.

What we are now witnessing is an attempted money grab. Who benefits from these higher-than-expected tax revenues?

Public sector pay increases would mean that the fruits of recovery would go exclusively to an already-privileged minority of workers. Surely fairness demands that the fruits of our recovery should be more widely spread?

taxes

Fortunately there is a precedent for dealing with situations like this. In the late 1980s as the country gradually clawed its way out of a deep recession "social partnership" was born. This wasn't the bloated monstrosity it later became, consisting exclusively of government, employers and trade unions.

No nonsense about benchmarking or "voluntary pillars", just the key people coming together in a room to do a deal.

As is the case now, the public purse was under severe pressure in the late 1980s. Whatever few bob the government had at its disposal had to be made go a long way. The deal struck was that, in return for the trade unions accepting low or no pay increases the government would cut taxes instead.

Irish workers were clobbered by €10bn of tax increases during the austerity-era budgets. Now it's payback time.

As in the late 1980s the extra tax revenue should be used to cut USC and income tax for all workers rather than going exclusively to the public sector.

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