Sunday 25 February 2018

Pay deal to push wage bill towards boom-time peak, will limit ability to cut taxes for working families

Fears agreement will limit ability to cut taxes for working families

Colm McCarthy: Government finances are not ‘elastic’
Colm McCarthy: Government finances are not ‘elastic’

Anne-Marie Walsh and Kevin Doyle

Public sector pay is heading back towards boom-time levels after the Government brokered a deal that would cost taxpayers €1.1bn over four years.

Fine Gael claims there is still room for tax cuts following the agreement that will give public servants a pay boost of up to 10pc.

The cost of a draft proposal hammered out in the early hours yesterday will eat into a third of this October's Budget, limiting the scope for measures that could benefit all workers.

Figures from the Department of Public Expenditure and Reform show the Exchequer pay bill now stands at €16.4bn. This is just €1.1bn less than it was at its peak in 2009, when it stood at €17.5bn.

But the bill could exceed that much earlier than the end of this deal. Documents show that staff numbers will soar to a high point next year, heaping pressure on the public finances.

The new deal means most public servants will exit the emergency legislation that cut their pay during the recession, with wage gains of more than 7pc. It offers pay rises from next year and reductions in the pension levy. Some will enjoy benefits worth 10pc of their pay.

Public sector workers will have to pay an extra permanent pension contribution from 2019, but this would not be any higher than their current levy, and lower in most cases.

However, rank-and-file gardaí who are among 23,000 staff on fast accrual schemes will be hit with the highest contribution - and last night warned they may reject the deal.

Read More: Unions are probably doing cartwheels in private after jumping at the offer tabled

In return the Government is promised productivity on a number of modernisation plans, many of which are already being rolled out, and the introduction of performance management systems.

It would keep 15 million extra unpaid hours in place that are being opposed by unions. It rowed back on proposals to allow competition on labour costs when outsourcing or to extend Saturday working arrangements.

Sources at the Department of Public Expenditure and Reform said the deal would cost €880m over three years, and €1.1bn over four years.

Economist Colm McCarthy said the cost would have to be subtracted from what is available for other purposes in the Budget.

"The Government doesn't have elastic money," he said - adding that the opportunity to reform public service pensions and bring them into line with defined contribution arrangements that are universal in the private sector has been missed.

Aidan Brophy of the Hibernia Forum said it was questionable whether it was ethically justifiable to give pay rises to public servants when studies showed they earn 40pc more than private sector workers.

"All the talk is about pay restoration, what about income tax restoration? And where's Leo who is looking after people getting up early?"

But Public Expenditure Minister Paschal Donohoe said tax reductions remain a key priority for the Government despite the squeeze being put on the public finances by the pay deal.

He said tying down a new permanent pension contribution was "very significant" as it would put public pensions "on a more sustainable footing in the future".

He insisted the deal offered workers "a pace of wage restoration that is affordable to our economy in line with all the other competing demands that we have".

"For those outside the public service who focus on how the taxpayers' resources are used, the message is very clear that we are not going back to wage levels or total compensation levels that ultimately proved unaffordable to everybody," he said.

Fine Gael leader Leo Varadkar also insisted that tax cuts for "working families" would be possible.

He said: "If you look at it in the round it provides for restoration of pay for public servants over the next three years but does so in an affordable way, in a way that still gives us space to actually improve services as well as improve pay and also makes the cost of public sector pensions more sustainable into the future."

The Government will publish its Summer Economic Statement in the coming weeks, but it is estimated between €500-€550m will be available for tax cuts and spending increases next year.

Irish Independent

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