'If you raise public sector pay and taxes, the rest of the economy loses'
John FitzGerald warns against giving in to union demands
A senior economist has warned the Government against fully restoring its 300,000 workers' wages to rates they enjoyed before the crash in 2008.
Trinity College Professor John FitzGerald said taxes would have to be increased and jobs could be lost if public sector pay goes back to pre-crisis levels. At one point salaries for public sector jobs were 20pc higher than those for private sector workers with the same qualifications and experience.
Mr FitzGerald said there was room for a pay rise for State employees, but only to match the 2pc to 3pc increases being given in the private sector.
The former research professor at the Economic and Social Research Institute predicted there would be strikes in the public sector by unions with "unrealistic expectations" who were likely "to try it on" after rejecting whatever pay deal was brokered at talks.
His comments come as public sector unions prepare to demand further pay rises at talks with the Government on a successor to the Lansdowne Road Agreement due to begin around June.
They are also seeking a "gesture" for their members in the form of a pay rise at talks set to conclude in January as a result of a recent €50m pay package given to gardaí to get them to call off strikes.
Mr Fitzgerald said wages were "unsustainable" before the crash. The pay and pension bill now stands at €17.7bn, €1bn lower than its peak of €18.7bn in 2008.
However, €1.4bn of €2bn cuts suffered by public servants as a result of a pension levy and pay cut during the recession remains to be restored.
"We can't go back to a situation where a public servant is paid much more than for the same job in the private sector," said Mr Fitzgerald.
"Before the crash, public servants earned above 20pc more than private sector workers with the same qualifications and experience, and obviously having to raise taxes and put pressure on the rest of the economy to pay for a higher standard of living was not sustainable."
He said the Government would have to cut back on expenditure, such as welfare payments or public investment, or introduce a higher tax level to fund the pay bill as it stood in 2008.
"If you raise public sector pay and taxes, the rest of the economy loses," he said. "A higher tax level means higher wages elsewhere in the economy, and we would lose jobs."
He said wages in the private sector would be pushed up because employers would be forced to do so to retain staff.
"In the long run, if you raise taxes, workers tend to get higher wage rates," he said.
"The private sector is competing against Christchurch and Berlin to attract Irish people to stay in Ireland. If they go or don't come back, you have to pay them more. Unions don't play a major role in wage bargaining in the private sector."
He said on average, Irish people would work here for 90pc of the standard of living they could have in London or Manchester.
Mr FitzGerald said there had been a major "adjustment" in public servants' wages due to a pension levy and pay cut imposed by the Government during the recession.
He believes those on higher pay are paid a bit less than their private sector equivalents, while those with lower Leaving Cert qualifications are paid more.
However, he noted that those in higher grades, including judges, are compensated with far better pensions than their private sector counterparts.
"In monetary terms, you're probably better off becoming a guard than a doctor," he said.
He said public sector pay rates should not return to what they were for around a decade, when they would be eroded by inflation.
"The fact that the standard of living of quite a number of people in 2008 was supported by private sector workers' taxes is unsustainable," he said.
He added that there was scope for a further public sector pay rise on top of increases due under the Lansdowne Road Agreement. A €1,000 pay rise is due in September. As a result, he said a further increase could be paid to make up a full 2pc for the year.
"There is bargaining to be done," he said. "They could get 3.5pc in September up to the end of 2018, or 4pc."
In relation to pensions, he said it was not reasonable to have the public sector much better provided for than the private sector.
"The fact that the public sector honours its pension guarantees, but the private sector can get out of it is very serious," he said. "We need to move to a fairer system."
He estimated that the value of a public sector pension must be between 25pc and 35pc of gross pay, while the gardaí's accelerated scheme would be worth over 50pc of their pay.
"Public sector workers are aggrieved when people don't acknowledge the huge cut in the standard of living they suffered, which was bigger than the private sector but much smaller than those who lost their jobs," he said.
"But there are trade unions that are unrealistic in their expectations. I wouldn't expect widespread industrial unrest, but somebody will try it on if there's a deal and end up out on strike. The Government can't give way, as the whole house of cards will come down."