Wednesday 26 June 2019

Dan O'Brien: 'Price to pay if Government gives in to nurses' demands'

The Irish economy continues to power ahead at quite a clip, but there are only so many bullets that can be dodged, writes Dan O'Brien

Marching in Dublin yesterday. Photo: Frank McGrath
Marching in Dublin yesterday. Photo: Frank McGrath

The industrial relations climate in the public sector has soured to the point that it is becoming a threat to political stability and, ultimately, to the wider economy. In a debate that has relied far more on emotive anecdote than on hard evidence, the tough trade-offs about nurses' demands for further pay have not always been articulated as clearly as they need to be.

Further afield, but close enough to home to cause concern, is a deteriorating economic, political and diplomatic situation at the heart of the eurozone.

Before returning to these issues, it is worth taking stock of more positive developments.

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The Irish economy continues to confound economists' expectations. A slowdown across Europe and much of the world, along with chronic uncertainty surrounding Brexit, should have caused Irish business and consumers to pull in their horns. Instead, they remain surprisingly bullish. Signs of a slump have yet to show up in any real way in any of the most important economic indicators.

Last week saw the first figures on joblessness for the new year. In January, dole queues continued to shrink. An almost boringly steady, six-year-old pattern of progress remained in evidence in the first month of the year.

The claimant count is now down to 200,000, from not far off half-a-million in 2012. Almost every detail of the very detailed figures on jobless benefit numbers showed that the labour market continues to steam ahead (in the right direction). The figures gave little indication that employers are being put off hiring by chronic near-term uncertainty, most notably the prospect of the hardest of Brexits just next month.

Last week also saw the first public finances numbers of the new year. They, too, point to an economy that is seemingly immune from bad news and investment-curtailing uncertainty.

The big revenue raisers - income tax, social insurance and VAT - all grew strongly, in a range from 7-9pc year on year. This is yet more evidence that economic growth continued at quite a clip into 2019.

If the economy is still powering ahead, generating lots of extra tax revenue for the Government, the weakening of fiscal discipline in recent years is a growing cause for concern, and something that is well encapsulated by the fiasco around the breathtaking cost overruns for the National Children's Hospital.

Last week's public finances figures show that the Government continues to ramp up spending as fast as new money is being raised from taxpayers. That is despite all the risks that the economy faces. It is in contrast to some other small open economies in Europe. They are prudently running budget surpluses. They have some petrol in the tank to stimulate their economies if they slow. Ireland does not.

That brings us back to the nurses. The latest figures from the Central Statistics Office show that the public pay bill grew by 20pc in the four years to the third quarter of 2018. That wasn't just a bit faster than other areas of spending. It wasn't twice as fast. It was a full three times faster. Put another way, public sector pay gobbled up almost half of all additional spending over that period.

Nor should it ever be forgotten that Irish public sector workers already earn on average 40pc more than their private sector counterparts. There is no difference in the average earnings of the two sectors in Britain. Broadcast interviewers could usefully quiz trade union leaders on why that is, because none of them can explain such huge unfairness.

If the Government concedes to nurses' pay demands, the entire - and already generous - pay plan for the public sector will fall apart as other unions pile in making their own claims. The money for even more pay increases than are planned will have to come from somewhere.

It cannot come from spare cash because the Government is only just about managing to balance its books. With that option unavailable, there are three possible alternatives.

The first is to borrow the money. Funding forever pay increases with borrowed money would be foolish in any context. For a government that is already one of the most indebted in the world by some measures, it would be folly of the highest order. It should be ruled out.

The second way public sector pay increases could be paid for is by hiking taxes, a much more sustainable way of funding it. If everyone outside the public sector is prepared to pay more taxes so that their better-paid counterparts in the public sector can get more, then so be it. Problem solved.

A third way to fund an even bigger public pay bill is to cut spending in other areas. Again, if public opinion favours cutting spending on welfare, education and housing so that nurses get more, then fine. But we need to be honest about the trade-offs involved. There is no hidden source of cash somewhere.

The strength of feeling, if not stridency, with which nurses have been pursuing further pay increases may reflect Irish people's comparatively high expectations about the future.

An annual survey by the global PR company Edelman, published in recent weeks, shows that almost half of Irish people expect to be better off in five years' time. That was the highest among the European countries surveyed. If there is a widespread sense that things are on the up, public sector workers and their unions may be motivated by wanting a cut of anything that's going.

The same survey included two of Europe's most troubled big economies - Italy and France. Their inhabitants are not nearly as upbeat about the future.

Just one in three Italians believe that they will be better off in five years' time. Given that the Italian economy has been stagnating for two decades, if anything Italians appear overly optimistic, and all the more so in light of developments since the survey was taken. Italy moved a step closer to going Greek last week when new figures showed that its economy had fallen into recession. Watch that space closely this year because it has the potential to deliver an economic hammer-blow to the entire continent.

The French, whose economy is much stronger than Italy's, are the least optimistic about their future prospects. Just one in five think they'll be better off in the middle of the next decade. Anyone who knows France or watches it closely will not be surprised by this. The negativity and sense that everything is going downhill has long been pervasive in that country. It is becoming increasingly pervasive, and the French are getting angrier.

The dark mood manifests in a number of ways. An opinion poll last week showed that support for leaving the EU stands at 40pc - an astonishingly high figure given what is happening in Britain and what a 'Frexit' could mean for the euro and cents in French pockets. The yellow vests protests over the past three months are another manifestation of the darkening mood in that country.

Developments within some big countries are spilling over into the relations among them. The meeting of senior figures in the Italian government with the French yellow vests caused Paris to recall its ambassador from Rome, an extraordinarily unusual move for EU members.

While we in Ireland obsess about Brexit, we shouldn't lose sight of what is happening on the other side of our neighbouring island. There is a lot to be worried about, and a crisis in the euro area could be more damaging for Ireland than even a no-deal Brexit. If both happen, well, it hardly bears thinking about.

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