'White lies' are informing the partnership discussions
Ireland is faced with severe economic and budgetary problems arising out of the ongoing global financial sector and economic "meltdowns".
Major policy changes are needed to position Ireland to return to substantial employment growth on the back of global economic recovery -- whenever that may occur. The ongoing social partnership discussions must address two issues in particular.
We need to "grow" employment by 20,000 annually just to accommodate today's school-goers as they finish their education over the years ahead.
We will need to generate as many more again, each year, if those now losing their jobs are to have decent prospect of re-employment before the middle of the next decade.
Costs out of line
But Irish costs have got far out of line. The partnership discussions, therefore, must lead to outcomes which will seriously improve Irish competitiveness -- critical to enable strong employment growth in the years ahead.
The public finances, also, are seriously out of line. The discussions must lead to outcomes which, over the next five years, will reduce a prospectively horrendous 2013 budget deficit of €22bn to a just-about-acceptable level of the order of €5.5bn. Measures must be agreed which will add up to deficit reduction of the order €16.5bn by 2013, in some combination of higher taxation and reduced public expenditure.
The enormity of the challenges demands that all face up to realities honestly. But some at the social partnership talks are dishing out seriously-misleading "facts" to bolster sectional interests.
What "big lies"? Three stand out.
First, the ICTU claims that Irish labour costs are low relative to those elsewhere - when, in fact, they are among the highest in the EU.
Their published submission to the discussions claims that "wages in Ireland ... are still relatively low compared to many other countries"; that "total labour costs in Ireland are a long 22nd place down the 30-member OECD club"; and that, according to the OECD, "the total cost of employing the average Irish worker in 2007 was just under $34,379 (€25,100 at that time), compared to $59,526 (€43,400) in Germany and $56,612 (€41,300) in the UK".
Each of these claims is very seriously inaccurate.
The CSO reports that average labour costs (gross wages plus employers' PRSI -- the concept used in OECD data) in Irish industry were €47,100 in 2007 - and €66,700 in our financial sector.
Gross wages (excluding employers' PRSI) were €42,200 in the building sector, €36,900 in non-financial private sector services, and €48,000 in the public sector (excluding health).
These CSO data, covering three-quarters of all Irish employees, give a weighted average 2007 labour cost slightly above €44,000.
Eurostat's databank allows estimation of average labour costs, economy-wide, in the various member-states.
It reports (i) Total Employee Compensation for each country in millions of euro, (ii) total persons at work (actual, not full-time-equivalents) and (iii) the proportion of those at work who are self-employed or employees. The misleading ICTU presentation purports to show that Irish labour costs in 2007 were 2nd lowest among the EU15 members.
Eurostat data gives the lie to this -- placing Irish labour costs 4th highest (and 30pc above the EU15 average).
It seems highly implausible that ICTU's top brass genuinely believe Irish wage costs (including employers' PRSI) averaged €25,100 in 2007. One is left with the conclusion that the ICTU submission intended to mislead - to protect their sectional interests.
Second, CORI claims that €14.5bn of the foreseen 2013 budget gap of €16.5bn would be resolved by the simple expedient of raising the Irish tax burden to the EU-member average. Is it really this simple to solve the public deficit problem?
The government projects GDP in 2013 of €209bn, with a public revenue ratio of 34.4pc of GDP on the basis of today's taxes, public fees and charges. Legislating €14.5bn of extra taxes by 2013 would raise this ratio to 41.4pc of GDP. How would that compare with the revenue ratios across the EU?
Before making comparisons, one little detail must be addressed.
Unlike other countries, a very large slice of Irish GDP is owned by overseas investors.
This "slice" - from which we can't collect VAT, excises, income tax or the like - is estimated to reach 18pc in 2013.
Our public revenues can only come from the remaining 82pc of Irish GDP. Calls for an Irish revenue ratio of 41.4pc of Irish GDP are calls for public fees, charges and taxes of €41.40 out of every €82 (over 50pc) of GDP which we Irish actually own.
How much do other EU members pay in public taxes/charges out of their GDP? At present, they average 45pc. Only three have a tax burden of 50pc or more - Denmark, Sweden and Finland.
The CORI proposition, if acted upon, would push Ireland's tax burden to 4th highest among all the EU member-states.
Imposing enough additional taxation to place the same revenue burden on us as is borne by the average EU15 state would close the projected 2013 budget gap by a little over €5bn - not €14.5bn.
Third, ICTU claims that "our public expenditure is amongst the lowest of the OECD countries" They back this up with a graphic showing public expenditure as a percentage of GDP.
This misleads about our true levels of spending (relative to Ireland's income) in the same way as GDP-based tax ratios mislead about our true tax burden.
There's a very simple measure available to compare public spending across countries. How many €uros does each country's public sector spend per head of population?
The Commission's figures indicate that public expenditure per capita here last year was 5th highest among the pre-enlargement EU15 - and (at €16,800 per head) was a full 25pc higher than the public spend-per-head of the average €uro-area member (€13,400 last year).
Public expenditure here would have been about €12bn lower, last year, if our €uro-per-capita spend were at the EU15 average.
The ICTU submission included an admonishment that "commentators demanding a (pay) cut should base their assertions on analysis and get their facts right".
It's a pity that this admirable principle was ignored in their presentation to the social partners. Indeed, that admonition might well be taken on board by certain others, also!
*Cathal O'Loghlin is former Assistant Secretary with the Department of Finance and Director of the IMF
- Cathal O'Loghlin
