Monday 22 December 2014

Labour's public sector pay hikes to be bankrolled by a property boom again

Are we to be forever ruined by the 'human behaviour' of politicians in search of votes? The omens are not good

Published 17/08/2014 | 02:30

There was another slew of good news last week to confirm the recession has ended and the economy is primed to expand again.

The financial houses and stock brokerage firms have followed where the ESRI has left off, to the effect that one of the most destructive crises in economic history is at an end.

The Davy Group, a blue chip provider of wealth and asset management, capital markets and financial advice has gone so far as to show how to spot the next recession and/or crash "before it's too late".

Davy has "carefully studied" other booms and busts since the mid-1970s based on a range of factors, such as wage growth trends, employment levels, spare capacity, credit conditions, business and consumer confidence, the level of corporate profitability and stock market valuations.

The 'Davy Economic Cycle Indicator' purports to show that the economy is now "mid-cycle"; in other words, it is set to take off again - notwithstanding potential external shocks, not least the weakness of Europe.

So the question is - how do we want to do it this time?

The problem is people do not know what to believe anymore - or who to believe, such is the level of caution, bordering on deep cynicism, which understandably abounds.

The cri de cœur, loud and clear, is when will this turnaround be evident in the pockets of the hundreds of thousands - millions - who have borne the brunt of austerity?

For what it's worth, my guess is 2017.

More than that, however, the question still remains - have we learned nothing?

And, by the way, where were the experts before this decade of a most devastating crash?

Brian O'Reilly, Head of Global Investment Strategy at Davy explains it like this: "Although a few wise sages warned of the dangers in advance, more often than not, their advice fell on deaf ears."

And he explains away the deaf ears as follows: "This is typical of human behaviour in the run up to all major crises throughout economic history."

So that's all right then? No it's not, actually - not anymore.

The human behaviour of politicians, for example, should never again be allowed account for the devastation which has been wrought on so many.

Have we learned nothing? Well, we are soon to find out, but the omens are not good . . .

Brendan Howlin wants to kick off a process to restore the pay and pensions of workers and employees in the public sector.

But first, the economic good news was last week also confirmed by, no less, a Fine Gael senator from Cork, in a press release 
entitled: 'Now is the time for young people to consider construction.'

After the exam results, and before the property developer from Cork, Michael O'Flynn, saw off a US vulture fund in the High Court - for now at least - Senator Colm Burke declared: "The recession is now over."

For the sake of completeness, Mr O'Flynn has also sued, for defamation, Lucinda Creighton in relation to a summer school speech which followed his attendance at a Fine Gael fundraiser event some years ago.

There remains broad satisfaction that the Wall Street vultures have been set back by the O'Flynns - that is, Michael and his brother John, who have been critical of Nama in relation to the deal with said vultures in the first place.

Also for the sake of completeness, it must be said to their credit that the O'Flynns did not cut and run bankrupt abroad like so many of the 168 developers who ran up debts of an astonishing €70bn in the boom before Nama moved in to clear up the mess.

For its part, Nama would question the objectivity of such criticism.

Nevertheless, after the O'Flynns' victory, a consensus also seems to have emerged that Nama needs to loosen the reins and allow developers back to work.

The question is to what extent the Minister for Finance, Michael Noonan, can afford to let loose those animal spirits.

The developers want to get on with plans to turn the IFSC into a version of Canary Warf, for example - and more besides.

And the ESRI has said that, to meet demand, 90,000 new houses will be needed in Dublin by 2021.

As a rule of thumb, construction industry sources say that for every €250,000 house built €100,000 goes to the Exchequer.

Enter Brendan Howlin and his plan to bankroll pay hikes in the public sector.

The Budget in October will be the most difficult Michael Noonan will ever have to craft.

Anybody can slash and burn, some with more precision than others - but it will take real skill to stimulate the economy at a sustainable level.

Human behaviour also dictates that Mr Noonan will seek to retain that "borrowed" Fianna Fail vote, in the famous word of Phil Hogan, soon to be our new European Commissioner.

Last weekend, into such a deep well of cynicism and doubt waded Labour's man in the Department of Finance, Brendan Howlin, the Minister for Public Expenditure and Reform.

He has raised the issue of declaring an end of the "financial emergency" for workers and employees of the public sector.

Talks are to start next year to begin a process to restore pay in 2016 or 2017: no doubt they will call it the Programme for Reform and Renewal, or some such.

The timescale is indicative, the intentions seem clear, for Labour to reclaim the public sector vote from Sinn Fein before the election in 2016.

Whatever about reform, there most certainly seems to be a form of renewal under way - that is, renewal of the old order?

In response to such human behaviour, the new Minister for Transport, Tourism and Sport, Paschal Donohoe was moved to declare: "The private sector will not be left behind." Ho Hum.

So who will be left behind?

Last week, I suggested that vast numbers of people in rural Ireland will, such as those in Carrick-on-Shannon, for a generation or more.

To that you can add those on social welfare, or without health insurance, according to the bankers' prophet, John Bruton.

Here is another rule of thumb: the public sector here performs 
no better or worse than the average in Europe, that is, there is room for further improvement - but pay levels remain above average.

In the private sector, meanwhile, all has changed.

It is tougher than ever out there - the pace of up-skilling is enough to spin heads, productivity levels have soared, pay rates, particularly at entry level, are so low and morale is on the floor.

When the dust settles on austerity, it will be seen that workers in the public sector have had it tough - relatively so - but that the private sector has suffered far more.

A more rounded way of putting it - and a fuller truth - may be that only the better off in the public and private sectors have, and the omens dictate, will, remain less vulnerable to the entirely 
predictable trajectories on Davy's chart.

Sunday Independent

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