Let's have real public sector pay debate
But at a time when we need solidarity instead we will get prejudice and spin from both sides, writes Stephen Donnelly
And so it begins -- the divisive, spin-sodden path to reducing the public sector wage bill. This week saw Pat Rabbitte and Brendan Howlin slide the Croke Park agreement on to the negotiating table and Eamon Gilmore whisk it off again. Fine Gael was noticeably quieter, but it knows where the conversation is going and, as our American cousins say, it has done the math.
To spice things up, the ECB has just released a report concluding that Ireland's public sector pay premium (the wage paid in the public sector relative to comparable private sector jobs) is conspicuously high.
There is a renewed focus on the €250m of public sector 'increments' (wage increases) to be paid in 2012. If the deficit target is missed (which is quite likely), the troika will be back, insisting on more cuts and taxes. This will lead to the wearingly familiar, polarising debate on public sector pay. Private sector and public sector union bosses will trade statistics and insults. Public sector workers will once again feel under siege. At a time when we need solidarity, we will get prejudice and spin from both sides. The debate will become poisonous.
Various reports on public sector pay, which compare it to the private sector in Ireland and to the public sector in Europe, show that the story is not straightforward. According to the ECB report, public sector compensation in Ireland grew by 64 per cent between 1999 and 2007 (in Germany it grew by 7 per cent).
However, Irish private sector compensation wasn't far behind -- it grew by 56 per cent in the same period. The report shows that per hour worked, public sector pre-tax earnings are 42 per cent higher than in the private sector. But when you compare after-tax yearly wages, this figure falls to 17 per cent, some of which is down to higher tertiary education in the public sector.
There are pockets of extremely well-paid groups in the public sector. We pay our medical consultants about twice what they are paid in the UK and Germany. Until recently, secretaries general in Ireland earned about the same amount as the US president. However, many public servants earn far below the average industrial wage. And there have been cuts to overtime and other activities which have led to enormous cuts in take home pay for many.
The ire directed at public servants during these debates misses the point. They did not demand pay rises -- their unions did. Who wouldn't accept better wages and working conditions? Public servants are more aware than most of the crisis we face. It is they who are trying to figure out how to run wards with less nurses and schools with less teachers. It is they who are trying to keep crime under control with less gardai. Many took out mortgages based on their pay, and they rely on it to service their debts.
When all the talking is done, and the various figures are spun, perhaps three issues will determine the future of public sector pay in Ireland: what the troika wants, what we can afford, and what trade-offs we are willing to make.
This week's ECB report addresses the first issue. "Notable differences emerge across countries, with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries," they say.
They point out that this can lead to "budgetary problems" and note that only in Germany do public sector workers earn less than their private sector counterparts. The analysis may be nuanced, but the message is not.
The budget deficit helps determine the second issue. The deficit (about €16bn) cannot be turned into a surplus while maintaining current levels of public expenditure, no matter what you do with taxes (or bondholders, sadly).
Which brings us to the third issue -- what trade-offs we are willing to make. About 40 per cent of our current spending goes to social protection, and just over another 40 per cent goes between health and education. As such, further large cuts in these three areas are inevitable. But a large portion of the cost is wages and pensions. In primary and secondary level education, for example, about 75 per cent of spending is on wages and pensions. And so, it becomes impossible to avoid options such as the following: have enough medical consultants on less money, or have too few on their current salaries.
The combined impact of three issues will probably lead to further public sector pay cuts. The government parties and the unions know this. Should it happen, there are options available to lessen the pain.
First, postpone pay increments, saving €250m a year. Yes, these are a contractual obligation. But the reality is that a postponed pay rise is less painful than a pay cut. I have spoken to public sector workers who do not feel they should be getting increments in the current environment.
Second, target higher-end public sector pay. Our senior public sector staff are paid 7.7 times more than the administrative level staff. (In Nordic countries the rate is just 3.5). Our top-level staff are among the best paid in Europe, and middle management are paid above average.
Third, instead of reducing pay, increase working hours. Bringing average public sector hours up to private sector levels (from 32 to 36 hours on average according to the ECB report) would yield huge productivity gains, thus protecting services and jobs.
Fourth, share the burden with the private sector. Any changes to public sector pay must be seen as fair. Introducing a higher tax band at, say, €120,000, would both increase fairness and accelerate the closing of the deficit by raising hundreds of millions of euros.
Fifth, make sure that public sector workers, and not just their unions, are consulted. I have heard from public sector workers in central Government, health and education who have said that they would be willing to take pay cuts in order to protect their colleagues' jobs and frontline services.
We are faced with trying to find the least bad ways of closing the budget deficit. The Government and the unions know that cuts to public sector pay and social welfare are inevitable. Is it possible that this time we could avoid the blame, the spin and the posturing? It is insulting to public sector workers and harmful to our society.
Stephen Donnelly is the independent TD for Wicklow