Benchmarking pay was €1.2bn annual 'mistake'
IN the boom years, social partnership was seen as a cornerstone of our economic success. But now a damning review of the Department of Finance's performance over the past 10 years has accused the national wage bargaining process of contributing to the failure of social partnership.
National wage agreements were credited with creating industrial peace and wage stability. But a new report has revealed the cost to the Government, and ultimately taxpayers, as a result of pay rises in successive wage agreements and controversial benchmarking increases -- with benchmarking for public servants alone costing €1.2bn a year.
The report stated that social partnership deals between unions, employers and the Government were initially based on wage moderation in exchange for lower tax rates, but after 2000 they became a "major driver of spending".
It said this was due to high wage demands and labour shortages as the economy "overheated".
"Economic overheating, along with the social partnership process, led to a major deterioration in competitiveness in the private sector and to very high public service wages, especially relative to international partners," the report stated.
"Primary school teacher salaries, for example, rose from seventh of 10 countries in the OECD in 2002 to third, behind only Germany and Switzerland by 2008."
Last night, the leader of the trade union movement, David Begg, claimed attempts to criticise social partners was "facile scapegoating" that obscured the true causes of the collapse -- banks, builders and toxic government policy.
"One of the first acts of that Government was to cut the 48pc top rate of tax. It is a matter of public record that Congress opposed that decision," said Mr Begg, who is general secretary the Irish Congress of Trade Unions (ICTU). "The cumulative effect of those policies was to entirely erode the country's tax base and inflate the boom."
Although he did not refer to the pay increases made under social partnership, an ICTU spokesperson said wages were responding to prices that were "going through the ceiling".
On top of the national pay deals negotiated for both public and private sector workers since the 1980s, benchmarking pay rises were given solely to public servants. The Public Service Benchmarking Body, set up in 2000, gave awards to public servants, pensioners and politicians, at an annual cost of €1.2bn.
It was famously described by former general secretary of the Irish National Teachers' Organisation, Joe O'Toole, as an "ATM machine".
By 2008, when the brakes were beginning to be applied to spending, the last benchmarking exercise awarded fewer pay rises, ranging from 1pc to 15pc, to just 15 out of 109 grades, at a lower cost of €50m a year.
The Irish Business and Employers' Confederation said the European Central Bank (ECB) found average public sector pay increased by 67pc between 1999 and 2006 in Ireland, whereas it grew by just 22pc in the eurozone area.
The pay and pensions bill topped just under €19bn last year, a third of government spending. Former Health Minister Mary Harney admitted late last year that benchmarking was an expensive mistake.