Wednesday 26 October 2016

David McWilliams: Fragile Government needs to stand up to unions to protect the rest of us

Published 19/10/2016 | 02:30

Taoiseach Enda Kenny and the Government must make a choice over pay deals Picture: Tom Burke
Taoiseach Enda Kenny and the Government must make a choice over pay deals Picture: Tom Burke

Do you get the feeling that Ireland has possibly the weakest Government in years, when it may well need the strongest? This fragile Government faces an internal insurrection led by public servants who feel that the recent recovery in the economy should be theirs. It's hard to fault the logic of the teachers and the gardaí. After all, they have been led to believe there is a direct link between tax revenues and their salaries.

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Let's be clear, there is none - or at least there should be none. However, given the way this country has run itself over the past three decades with that creature called 'partnership', public-sector unions have managed to create some line between tax revenues and public-sector costs.

During the downturn, this link was underplayed as the private sector shouldered the bust in the guise of mass unemployment and emigration. The public sector was protected from this traumatic fate.

Now that finances are slightly more buoyant and, more crucially, because the Government is - structurally at least - the weakest in living memory, the link between tax revenue and public-sector salaries has been miraculously reinstated. This is against not only the spirit but the letter of the Lansdowne Road Agreement.

Whatever the merit of the gardaí or the teachers' cases, it should not be the case that when the revenues of the State increase for whatever reason, that such increase is automatically the property of public-sector workers. Traditionally, wage increases should be linked to productivity.

Therefore, it should be up to the State, together with the unions, to come up with productivity measures for both teachers and gardaí and if they collectively, or more fairly, individually, meet these or better these measures, then they should be paid more.

However, if the unions simply want to tear up the Lansdowne Agreement because they see the Government as being weak and they see this as an opportunity to orchestrate a smash-and-grab exercise, then the rest of us, those whose taxes pay these wages, are entitled to feel aggrieved.

The future of industrial relations in Ireland is at a crossroads.

Will the Government give in to every demand? Or will it compromise so much that it may as well have given in? Or will it stand up and fight on behalf of the majority of the electorate, who are not in the public sector?

The first scenario is easy enough to plot out. As the growth rate of the economy remains fairly constant - and no one expects a massive surge in tax growth this year - the cost of higher public-sector wages will be paid by those taxpayers who are not in the public sector. It can't be any other way. Clearly, the State could borrow to pay higher wages, but it isn't going to do this. Remember we are still running a budget deficit, implying that we can't even balance our books right now, let alone after a huge hike in the public-sector cost base.

In short, we are dealing with a plot against the ordinary working person by a public sector that has direct access to the political class. The unions know that a fragile Government is dependent on them as a voting bloc. On the basis that an election could be one or two political screw-ups away, the unions can hold the Coalition to ransom.

With the Government so fragile and Fianna Fáil breathing down the Cabinet's neck, pay negotiations become like a hostage situation. The public-sector unions threaten the Government: pay up or else we will strike across the board. The unions know that a weak Government is likely to buckle under the strain of industrial conflict because the likelihood is that some Independents wobble, the Government collapses and the unions instruct their members to vote for the party that promises them the biggest ransom.

But who pays the ransom?

Well, the average taxpayer who is not a member of one of the cosseted unions.

This is how it works when the electorate delivers a vote which is nothing more than an inconclusive mandate to do as little as possible and hope for the best.

When we look in more detail at public-sector workers, we see their pay is already more than 30pc higher than the private sector, plus their huge unfunded pensions are nothing more than a debt pyramid. The reason we can describe the entire public-sector pension structure as a debt pyramid is because public-sector pensions are not based on some investment that makes money or some dividend or some return to savings - as is the case with everyone else's pension. The public-sector pensions are a tax on new entrants into the labour market because they are paid directly out of current taxation. Therefore, one older worker's windfall is another younger worker's taxation. This money is not earned but appropriated.

Thus, you can see one route is the way to chaos where the unions ransack the public purse and take money out of the pockets of other workers. This is the route that will be paved with governmental good intentions.

The other route is for the Government to stand up for the 1.7 million other taxpayers who are not public-sector workers. Clearly, there are deals that have to be honoured under the Lansdowne Road Agreement, but there should be no more. This way the teachers and gardaí would get a fair deal, but not a special deal.

This route, the route of holding the line, demands political mettle.

However, there is little doubt that a government that stands up for the interests of 1.7 million against 300,000 is doing the democratic thing.

The choice is clear. In fact, it couldn't be clearer.

Irish Independent

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