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Marc Coleman: Central Croke Park myths exposed in a single sentence

WATCHING paint dry. Gulping down several pints of water. Watching reruns of Oireachtas Report. Unless you're an economist, its hard to think of things that are more boring than reading an economic paper. But if you do ever read one, the one I recommend is The Public Sector Pay Gap in a selection of Euro Area Countries by Giordani et al.



In one single sentence, this paper blows to smithereens two central myths surrounding the case for the construction, defence and – if the papers are to be believed – the continuation of the Croke Park deal. And while the paper is written by ECB staff, it does not reflect the views of the ECB. Therefore the response, "Ah that's the crowd who forced us to bail out bondholders," is invalid. Quite apart from the fact that the Croke Park deal forces us to bail out a public pensions liability four times greater.

The good news is, you don't have to read the whole paper. The golden sentence is contained in a mercifully brief abstract: "Notable differences emerge across countries with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries."

Public pay and pensions in Ireland is not just the highest in Euroland, but, as Figure 1 of the paper shows, the public/ private pay differential is the second highest after Portugal. More interesting still is that while all the crisis countries – Portugal, Ireland, Italy, Greece and Spain – have a strongly positive public-private pay gap, in well managed non-crisis countries – Belgium, Austria, France and Germany – public pay is at or below private sector pay levels. Another interesting coincidence between Portugal, Ireland and Greece is that they all have centralised government wage setting, while none of the non-crisis countries do.

The first myth about this crisis – that "right-wing policies" caused it and "austerity" worsened it – is blown apart by the paper. Rather various shades of left-wing government – from Greek socialism, to Spanish and Portuguese Social Democracy and Irish and Italian social partnership – have led to bloated spending, chronic debt and penal taxation, joblessness and low growth. By contrast, countries that cut early and cut hard are now growing: Latvia, which cut spending by 30 per cent in a year, grew by a staggering 5.5 per cent last year and its unemployment rate is falling.

Another myth blown away is that public/private pay differences here are justified by "higher qualifications". If so, then why does Germany – which has a far better public sector – have a negative public/private pay differential? The answer is that while in Germany qualifications are relevant to service provision, in Ireland they are often irrelevant or surplus to requirements. And, as former Ictu General Secretary Peter Cassells has said, no economy can deliver full employment unless public pay is at or below private pay.

Successive polls show that two thirds of us oppose Croke Park. But with its union allies threatening strike action to destroy the economy if it is touched, Labour holds the whip hand on Croke Park. Unlike 1987, when they worked together, Fianna Fail and Fine Gael are divided and the majority of Middle Ireland is frustrated. And despite a get-out clause that can be invoked if forecasts worsen, Brendan Howlin now wants to continue Croke Park until 2015. In return he hopes for €1bn in savings from work practice changes. The words "Twelve days of Siptu" spring to mind. And while Croke Park has delivered some – long overdue savings – they are too little too late and far too uncertain in magnitude.

In 2009 Professor Alan Barrett showed how public pay was 12.5 per cent above private pay on average.

Unions point out that since then they've taken a 7.5 per cent pay cut. But that still leaves 5 per cent.

A senior civil servant has confirmed to me that €1bn could be saved each year by applying an average cut of 10 per cent to pay and pensions above a modest threshold and with a sliding scale for higher earners.

Compared to the scatter-gun approach of cutting allowances and changing work practices, a cool, clean across-the-board cut is a fairer way to avoid destructive tax hikes and will avoid 100 pitched battles over various allowances and work practices. And it still leaves our public servants among the best paid in Europe.

Lenihan's bravery in cutting pay was rewarded in 2010 by GNP growth of 4.8 per cent and a tax take that was half a billion above target. Then came the Croke Park deal and the taxes to pay for it. In 2011 GNP collapsed, tax revenues fell half a billion behind schedule and a recovery was turned into a recession.

Thankfully our export and GDP performance remained much better than the PIGS. But for how long? And where bloated overspending, over taxation and debt are concerned, we remain a Club Med country. Last week Markit PMI data showed that Club Med policies are pushing Europe back into recession. While we shouldn't go as far as the Latvians, we must now detach from Club Med tax-and-spend policies if we want our domestic economy to grow.

Teachers, nurses, gardai who deliver tangible services (and earn mostly below €40,000) have made lifetime commitments to public service and are entitled to continued protection under Croke Park. But our economy ultimately relies on workers in export industries who are unprotected from pay cuts and job losses. You can protect pay or jobs, but not both.

John Downing's observation that Croke Park has guaranteed "industrial peace" is ironic. There is no "industry" in the public sector. And strike action in many parts of it would not harm the economy.

Instead of institutionalising age-apartheid – with new entrants earning less than incumbents – a line should be drawn for pay (about €40,000) and pensions (about €20,000) above which the Croke Park deal no longer applies.

Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 10pm on Newstalk 106-108fm; @marcpcoleman

Sunday Independent