Daniel McConnell: Can public sector pay rises be justified during coronavirus?
Up to 1.2m workers in the private sector have lost their jobs, had their pay cut or are on some form of State support since the beginning of the coronavirus pandemic.
On the other hand, you have about 300,000 public sector employees who are not only safe from a pay reduction but are set to receive pay increases later this year. Under the final phase of the current public sector pay deal, all 330,000 public servants including nurses, teachers, gardaí and council staff are due to get a 2% pay rise in October.
The truth is this: Pay rises at a time when so many are threatened with pay cuts and unemployment is not fair and in the midst of a €30bn gap in the State’s finances, is simply madness.
Three weeks ago, we reported on our front page that a number of Fine Gael ministers have concerns that a new public service pay deal is not feasible, when faced with the worst recession in history.
Cabinet ministers have expressed serious doubt about the credibility of maintaining promises made by Taoiseach Leo Varadkar and Paschal Donohoe.
“There is serious concern being expressed by colleagues about our ability to meet a new pay deal when we have a likely €30bn hole in the public finances, as well as not introducing tax increases or welfare cuts,” said one minister.
Another said: “Yes, public servants have done great work over the past few weeks, but they have been paid. Look at the small businesses, the private sector workers who have lost their job. We need to defend them.”
Such utterances sparked a series of commentary from unions, predictably demanding that pay rises scheduled for October go ahead.
Patricia King, speaking to the Business Post, insisted the pay rates must be honoured, citing the role played by public servants in dealing with the pandemic.
“Who is keeping the country moving and rolling? Who has kept people safe and who is going in every day to risk their lives to make sure that people are safe?” she said.
The reality is that the increase in pay will add €88m this year to the existing State pay bill and €264m in a full year.
King’s comments then led to statements from the top level of government that the deal would be honoured, thus reflecting the weakness of the political class at present and the power of the trade unions.
Despite the union’s claims, the stark reality of the state of the economy has been set out in recent days by both the ESRI and the Irish Fiscal Advisory Council (IFAC).
IFAC chair Sebastian Barnes said hard choices on tax and the pension age will be required over the next five years as a new government seeks to recover from the Covid-19 crisis and looks to deliver ambitious new projects.
Barnes said politicians need “to keep everything on the table” so they have a full range of choices available to decide how to deal with the lasting impact of the crisis, but also to deliver on some ambitious projects such as Sláintecare, housing and on climate change.
He said income tax, which makes up about a third of the tax base, “is very important”. Barnes said it would be “a good idea to have a good look at the tax system” and make sure it works as well as it could.
For its part, the ESRI said the economy is on track to shrink by 12.4% this year, marking the largest annual slump in its history, as the Covid-19 pandemic wreaks havoc on households, firms and government finances.
The forecast, contained in ESRI’s summer economic commentary, is more pessimistic than the Government’s projection that gross domestic product (GDP) will fall 10.5% this year.
It is also more downbeat than the 7.5%-8% contraction factored in by the country’s two main banks, Bank of Ireland and AIB, as they revealed earlier this month that they had started to set aside money to cover an expected fresh spike in bad loans.
The ESRI’s baseline scenario, which sees a gradual easing of lockdown restrictions and Covid-19 unemployment and wage subsidy supports expiring as planned in June, also envisages the Government posting a budget deficit of€27bn or 9% of GDP this year.
The truth is that such dire financial warnings undermine the call for pay rises.
We have been here before.
Ten years ago, at a time of extreme crisis for this country, the then Taoiseach Brian Cowen and his finance minister, the late Brian Lenihan went to war with each other over the issue of public sector pay.
Cowen, against the express wishes of Lenihan, sought to continue Fianna Fail’s commitment to the model of social partnership, even though the country was borrowing €20bn a year just to keep the lights on.
The Croke Park Agreement, signed in June 2010, was Cowen’s attempt to continue the social partnership model.
“We are the authors of it, and we should stick with it, especially now we are in tough times ... You must respect the process, because [if you don’t] then who is going to listen to you? You can’t act in bad faith,” Cowen later said, defending his decision in the 2016 book Hell at The Gates.
“There was a popular movement in some elements in the media; it was never my way to take a macho approach, in terms of running the country.”
Cowen believed a deal would help ease social divisions at a time of crisis, but in truth it only furthered them.
Lenihan, for his part, strongly resisted the move as it committed scarce resources at a time of great crisis.
He felt the country could ill afford to enter into any agreements and wasn’t shy about letting people know this.
“Lenihan didn’t want anything at all to do with it,’ revealed then chief whip Pat Carey.
“He felt it made no sense to be doing a deal with anybody. He would get quite exercised about that... On the other hand, Brian Cowen felt whatever chance we had of muddling through, we must try and have some level of industrial peace.”
Finance Minister Paschal Donohoe has now said that the contribution of frontline workers has to be acknowledged and commitments have been made to public sector unions over the last three years.
“The very workers we are talking about have been at the frontline in particular in our hospitals and in our Gardaí in dealing with some of the most difficult consequences of Covid-19.
"They have done such a remarkable job in keeping our country safe and when a new government is formed, we’ll need to sit down and look at what is the future of public pay going to be here in our country and look at all of these issues in that context.”
It is telling that the finance minister has said the public sector pay agreement will be examined when the new government is formed.
“Getting our citizens back to work will be the single largest driver of improving where we are with our public finances.
"There will be decisions that will be made in the future. But before we get to any of that our first priority is to make decisions in 2020 and in 2021 on top of what we have already done to get our citizens back to work,” he said.
There is a review clause in the public sector pay deal which states that measures can be revisited if there are “adverse” changes in “economic circumstances”.
Without doubt, we are in those adverse economic circumstances and that clause must now be exercised.
If it is not, the government will rightly stand accused of once again cosseting the public sector while the private sector endures such pain.
That certainly would not be fair.
