Looking at Greece will give a sign of things to come here
Published 24/08/2011 | 05:00
Pay and overall numbers in Ireland's public sector have so far remained broadly untouched by the IMF/EU, but this is unlikely to remain the case indefinitely.
With the Government intending to cut spending and raise taxes by "at least" €3.6bn in December's budget, the economy will soon come to a point where the only remaining area where dramatic savings can be made is in the public sector.
The Croke Park agreement has allowed the Government to avoid committing to cuts in public sector numbers (excluding natural wastage), but eventually this position will come under pressure from Ireland's lenders.
The lesson from Greece is that change in the public sector will have to be delivered eventually.
There, the so-called troika (the EU, the IMF and the ECB) have been imposing a severe austerity programme since July, directly involving the public sector.
According to the fourth review of Greece's bailout programme, the country will have to cut one-in-five jobs in the public sector between now and 2015. While some of this will come from natural wastage, there will be what the IMF calls "involuntary" departures.
The cuts in public-sector pay look like being equally radical. The review claims there is a gap between similar public-sector and private-sector jobs in Greece of between 11pc and 32pc.
While the review does not stipulate across-the-board pay cuts that are needed, it does insist that public-sector-pay rates must come into line with the private sector.
The other element of the austerity programme in Greece is the closure of public-sector bodies. The IMF/EU demanded that 12 large bodies close immediately.
Ireland's IMF reviews so far have tended to concentrate on banking changes and new forms of taxation. But, by December, the Government will have to sign up to new ceilings on spending in each department.
This will halt any upward rise in the cost of the public sector, but so far the Government has not been forced to cut numbers, except in terms of natural wastage.
However, this is unlikely to be sustainable in the long term as the Government runs out of options for fresh tax increases and fresh savings.