Enda vows no public pay cuts 'at all costs'
'Nation in receivership' needs €5bn in cuts as economist warns of default
Published 01/05/2011 | 05:00
TAOISEACH Enda Kenny and his Government will avoid cutting public sector pay "at all costs", despite the dramatic cut in the country's economic growth forecasts this weekend, according to a confidential memorandum sent to all government departments.
The sharp downgrade now means cuts of up to €5bn in December's Budget will be needed -- far higher than the €3.6bn forecast at the start of the year -- casting fresh doubt on the country's ability to meet its soaring debt costs.
Jim Power, chief economist with Friends First, yesterday said that the downgrade in growth forecasts meant an Irish default was now far more likely unless Europe intervenes with a genuine rescue package.
The top-level secret document to ministers and senior staff reveals that the Government is committed to a course in which all other avenues will be prioritised before further pay cuts for public sector workers will be countenanced -- despite the worsening economic conditions.
"Government does not want a situation where public pay rates are cut," the note says. It states that the Government will continue to push for reforms under the Croke Park Agreement but acknowledges that there is a limited "window" in which to achieve those reforms before the IMF will insist on wholesale reductions, including salaries.
"(The Government does) not want to see pay cuts happen and we've got a time window now in which to implement in full the (Croke Park) agreement," it states.
Senior government sources said the hesitancy to inflict further pain on public servants was part of a carrot and stick approach to achieving the reduction in numbers of 25,000 and wider efficiency reforms, while maintaining industrial peace.
"How could we expect to get reform if we are threatening more cuts? We are trying to avoid that scenario at all costs," one senior government source said last night.
"The Government is committed to achieving the necessary reforms in the public sector through the Croke Park agreement, which protects pay -- this being conditional on achieving the necessary savings through eliminating waste, increasing efficiencies and securing real reform," a government spokesman said.
The budgetary deficit for 2011 was pencilled in to be €12bn at the start of the year and the Government had been aiming for spending cuts of €3.6bn this year.
However, given the latest downgrade in growth, that figure is likely to be closer to the €5bn mark, government sources admitted last night.
Mr Power said yesterday that given that around €20.5bn of cuts had already been inflicted since 2008, the economy simply could not take a further cut of €5bn this year and that Ireland was now heading for default.
"Either Europe steps up to the plate with a realistic rescue package or it is inevitable that Ireland will default. The numbers are now too big for the economy to cope with and we are running out of road very quickly," he said.
Former Taoiseach John Bruton has called for the implementation of some cuts to be brought forward, rather than waiting until December's full Budget.
"There is a lot to be said for accelerating the 2012 budget process and taking decisions earlier than financial markets and our European partners expect. Ireland urgently needs to surprise the markets with some good news," he said.
However, senior government sources last night ruled out any such cuts in this month's Jobs' Initiative.
But they indicated that given the lower-than-expected growth forecasts, spending cuts could be announced before September.
"Each department has been asked for early spending savings before the conclusion of the Comprehensive Spending Review.
"If there are spending cuts that can be announced before the conclusion of the review, we will do that. Government will not sit on its hands," one senior source said.
The vast majority of the Irish public are opposed to the protection of public sector pay rates, given that the country is in "receivership" as Education Minister Ruairi Quinn put it last week, a new poll reveals.
According to the latest Sunday Independent/Quantum Research nationwide poll, 74 per cent of those polled did not think it was right that public service pay should remain untouchable.
Many of the respondents expressed a sense of anger and frustration that unions and their members had not woken up to the reality of our economic situation and continued to behave as if we could afford to maintain their wages and pensions at pre-bust levels. They wondered would this only happen when the day came when we had no money left to actually pay their wages.
There were, however, many respondents who only wanted to see pay cuts targeted at those in the higher grades.
Twenty-six per cent of those polled did think it was right that public service pay remained untouchable.
They argued that the public service had already taken big cuts in wages and pensions and could not afford to make any more sacrifices.