Saturday 10 December 2016

Restraint is essential at public sector pay talks

Make no mistake - any increase on public spending is a gamble on the continuation of recovery, which is uncertain

Published 17/05/2015 | 02:30

THE BAD OLD DAYS: Do we want to go back to the days of unsustainable government finances, banks offering 100pc mortgages and ‘soft landings’ all round?
THE BAD OLD DAYS: Do we want to go back to the days of unsustainable government finances, banks offering 100pc mortgages and ‘soft landings’ all round?

Whenever you hear trade union officials ask for the 'restoration' of the 2008 levels of public service pay you should ask what other features of Ireland pre-2008 they would like to restore. Unsustainable government finances, bust banks offering 100pc mortgages, soft landings all round?

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The reductions in public service pay have been painful, but they have been imposed as part of a very important and quite unavoidable restoration project. That project, only partly accomplished, is the construction of a sustainable model of economic management for a small country that lost the plot for a full decade. A very visible manifestation was the explosion in public service pay costs up to 2009. Since then, there have been reductions in pay levels as well as voluntary severance arrangements that have reduced the numbers of public servants. The burden of future public service pension costs has also been moderated. These measures were enacted because the revenues of the State were inadequate to meet all commitments, to the extent that the State itself lost its credit-worthiness and had to resort to the humiliation of reliance on official lenders.

The State budget continues in substantial, if declining, deficit. Should the Government agree to increases in any area of public spending, the extra funds will be procured through borrowing. The national debt will continue to rise until the deficit is eliminated. Notwithstanding the evidence of a genuine economic recovery, the revenues of the State remain inadequate to fund expenditure commitments, never mind any expenditure increases. The 'restoration' project by the public service trade unions is seeking a return to unsustainable pay costs financed through extra borrowing.

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