Public servants have given the Government a slap in the face with their decisive rejection of the Croke Park agreement. The nature of the Coalition’s response will tell a lot about its ability to stay the course and deliver on its pledge to restore the country to economic wellbeing by the end of its term.

The Government’s initial reaction has been to take a step back and see if there is any possibility of a compromise deal emerging from the wreckage of Croke Park but the bottom line is that it cannot afford to accept defeat.

A retreat from the commitment to make savings of €1 billion in the public service pay and pensions bill over the next three years would not simply throw the budget arithmetic out of kilter, it would fatally undermine the Coalition’s authority.

Most Government TDs, in Labour or Fine Gael, know the overall targets for payroll savings set out by Brendan Howlin simply have to be met. While it would obviously be preferable to achieve that goal by agreement with the major public service unions, it cannot be avoided.

The initial response by Howlin and Taoiseach Enda Kenny was to try and create a bit of space so that a way around the impasse can be explored. Politically that was a sensible reaction and it was the least the Government owed to the union leaders who did their best to get the deal accepted.

The only positive that Howlin was able to take from the result was that if less than 1,000 Siptu votes had gone the other way, the deal would have been formally approved. Given that the turnout among Siptu members was just 45 per cent there is a theoretical possibility that if the deal is tweaked to suit that union's members it might be carried in a new ballot with a higher turnout.

That, however, is a very big if. For a start, Siptu members work in various parts of the public service so there is no obvious solution that can be tailored to produce a majority Yes rather than No.

Decisive margin
A more fundamental problem is that when all the votes cast by the various unions are taken into account the rejection was by a decisive margin of two to one, with 115,000 union members voting No and 55,000 voting Yes.

Given that many of the No votes were cast by the public service workers least affected by the cuts, or not affected at all, there must be some doubts about whether an agreed settlement can be salvaged.

Right through the process Ministers and the union leaders who attempted to sell the deal insisted that voting No would not be consequences-free. Assuming a new deal proves impossible, those consequences will have to be faced up to by all.

Shortly before the vote, Howlin was quoted as saying that the alternative to the deal was an across-the-board pay cut of 7 per cent over three years. In fact what he said was far more nuanced than that, and he has left open the option of trying to make the savings by implementing some of the key elements of the rejected agreement rather than an overall pay cut.

The problem is that many of the savings were going to be achieved through more flexible working arrangements. If that flexibility is not on offer, they will have to be found through cuts in pay or allowances.

Whatever way it handles the situation the Government will have to be very careful not to punish the union members who voted Yes by demanding more from them than it does from the unions that voted No.

There is not much time to get the mess sorted. The savings are due to come into effect by July 1st but decisions have to be made much earlier than that. Oireachtas committees are due to consider revised public service estimates for this year in June so plans will have to be made by then.

One thing the Government could do to try and improve the atmosphere in advance of making the decision would be to announce that the already agreed cuts in pay and pensions of politicians will take place regardless of anything else.

Under the terms of the Croke Park agreement, the pay of the Taoiseach is due to come down from €200,000 a year to an effective €167,938 with the application of the Croke Park provisions. Ministers will see their current pay cut from €169,275 to €143,048. The pay of ordinary TDs will come down from €92,600 to €87,300.

To be fair, politicians have taken a series of cuts since the crisis. As well as taking lower salaries, the current crop of politicians will actually have much lower pensions than their predecessors and none of the extraordinary severance pay arrangements for office holders that developed in the boom years. When the Croke Park II arrangements are implemented, the salaries paid to Ministers will not be much more than the pensions of some former office-holders.

Top-tier pensions
One of the things that really rankles with the public is the extraordinarily generous pension arrangements that apply to a number of prominent former politicians and public servants. Early in the talks on Croke Park II, it was mooted that existing public service pensions should be capped at €100,000 but it appears this was plan dropped on legal advice, and in the end far smaller cuts were proposed in top-tier pensions.

The pay and pensions of politicians is a very small part of the overall public service pay bill but in terms of public perception it continues to be a big issue. Making it clear that they were going to proceed with the plan to cut their own pay before applying cuts to anybody else would strengthen the Government’s hand to do whatever it takes to meet its targets.