Taoiseach Brian Cowen and his Finance Minister Brian Lenihan have started to backtrack this weekend on tackling public sector pay and their promise of no further tax increases in the Budget on December 9, to the considerable anger of business leaders.
There has been a clear shift in position from both the Taoiseach and his Finance Minister on their previously stated position that public sector pay would have to be cut and that no new taxes, except a carbon tax, would be revealed on Budget day.
Last week, Mr Cowen clearly stated that €1.3bn in cuts would have to be found in public sector pay and pensions. At a meeting with union leaders last Wednesday, Mr Cowen and Mr Lenihan said cuts of 6.85 per cent in the public pay bill would have to be found. Yesterday he was quoted as saying he was prepared to examine whether that reduction could be met through reforms as opposed to pay cuts.
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He said: "The Government is anxious to work with the public service unions to identify measures, including the restructuring of the delivery of public services, which would enable costs to be reduced without reducing pay rates.
"Achieving that adjustment will require difficult decisions to be taken, and this would include a reduction of the order of magnitude of €1.3bn in the cost of the public service pay bill. It is clear that adjustments of this scale will be difficult."
Government sources yesterday made clear that it expects the unions to "make the running" in terms of alternative savings, ahead of their meeting on Wednesday.
But there was also a major shift in position from Mr Lenihan, who appeared to suggest that some people would now be hit with tax increases.
Speaking to the Sunday Independent, Mr Lenihan's spokesman said yesterday that there might be tax increases for some people, but maintained that the overall burden of taxation wouldn't change much.
"There may be some move on rates within tax heads, for certain people, but overall the burden can't be increased much further," Mr Lenihan's spokesman said yesterday.
He also said that people should not obsess about the figure of €1.3bn in cuts, as outlined by the minister himself, last week, and he insisted that no firm decisions had been taken yet.
However, a Government source said last night: "The €4bn reduction is iron law, and all reductions must be done in a credible way for the EU, and, most importantly, the Irish people."
The public sector unions are to meet Department of Finance officials next Wednesday, in an attempt to avert strike action next month. The Government has told union leaders that it wants to reduce the public sector pay bill next year by 6.85 per cent, amounting to €1.3bn.
Unions are considering plans for a national day of protest on November 6, and a 24-hour public service strike on November 24.
Jim Curran of Isme, which represents 8,500 small and medium business throughout the country, said that the country had no option but to cut public sector pay and reduce the deficit this year by €4bn. He said the coming Budget was the most important in over 20 years and added that the country had no choice but to accept the pain it faces.
"We would be highly disappointed if this Government don't tackle this issue head on, and we simply can't raise taxes anymore. Not cutting public pay just isn't an option," he told the Sunday Independent.
Among the reforms likely to be considered are greater efficiencies and flexibilities, improved use of technology, more scope for redeploying staff and the removal of bureaucracy. A Department of Finance spokesman said that, if the reforms are agreed upon and properly costed, they could be implemented immediately.
At the forthcoming talks the Government will set out its own analysis of the measures that are required for recovery, including the importance of restoring stability to the public finances, according to Mr Cowen. Achieving a €4bn adjustment in 2010 as was announced last April, would be critical, he said.