Some sanity has returned to public sector pay determination, writes Turlough O'Sullivan
Employers
The second public sector benchmarking report published yesterday awarded 0.3 per cent on average to public service employees. In reality a small number actually received increases.
When the first benchmarking report was published in 2002 granting average increases of just below 9 per cent across the board to public servants, it was greeted with much cynicism and incredulity. It was seen as strong evidence that public servants were looking after themselves in their protected environment with job security for life and pensions directly indexed to the post from which they retired.
This very generous award was additional to the normal increases under the national wage agreements and came in the wake of the collapse of the technology boom and subsequent job losses and pay reductions in the private sector.
Until the 1990s, the process was crude and destructive. Particular front-line services would give the public two choices: pay us increases over and above what everyone else is getting or we cut off the service. Post, electricity, teaching, nursing, even the so-called blue flu in the Garda Síochána are bitter memories.
Each such leg-up for a special interest group was followed by relativity claims by others. This was ultimately paid for by taxpayers who could not afford the same luxury of ignoring the market.
The break from this came in 2002 with the first round of benchmarking. The theory was simple and sensible. For any category of public sector employees, determine their pay by matching it against comparable employees in the private sector.
This was fine in theory but proved to be inadequate in practice. The process did not take account of the aforementioned generous pension schemes, job security and other benefits enjoyed by public sector workers. The comparisons were made around 2000 when the private sector was booming and earnings growth reflected this. Public confidence was further undermined because the process was not transparent.
To add insult to injury, the European Central Bank found that between 1999 and 2006, average public sector pay in Ireland increased by 67 per cent (faster than any other country in the EU) while private sector average pay in that period increased by 42 per cent. This is reflected in the Central Statistics Office national employment survey for 2006 which showed that Irish public sector workers enjoyed average earnings 49 per cent higher than the private sector.
It would be very damaging to Ireland, our competitiveness and our international reputation if we had a repeat of what happened in 2002. Given the current economic slowdown, it would have been disastrous if public sector pay rates again bounded ahead regardless of what happens in the real world.
This time round, the benchmarking body is recommending average increases of 0.3 per cent in overall pay costs or €50 million per annum. In its terms of reference, the body is required to have regard to "the need to underpin the country's competitiveness and continued economic prosperity".
It is encouraging that the body reiterates the statement in its terms of reference that "change and modernisation is a continuing requirement of a modern public service and is not, of itself, a basis for an improvement in pay or conditions".
Private sector employees face the prospect that they may be among the 500 who are losing their jobs each week. Even the prudent employees and self-employed who make provision for themselves and their families at retirement must face the uncertainty of global markets: the sort of State-backed pension scheme enjoyed by public sector employees would offer them security beyond their wildest dreams.
At last there is now some recognition of this reality as the benchmarking report puts a differential value of 12 per cent on public sector pensions: this is probably understating the difference but it is at least a move in the right direction.
In 2008, the public sector pay and pension bill is already estimated at €18.6 billion and accounts for 38 per cent of overall current public expenditure. This is a 6.2 per cent increase over 2007 before any benchmarking rises are included. Every 1 per cent increase in the public sector pay and pension bill costs €186 million: that amount could widen the standard rate tax band by €1,500 or cut the top rate of tax by 1 percentage point.
It seems to me that while the concentration has been rightly on remuneration, a comparison of staffing levels and productivity between the public and private sectors is long overdue. This would provide us with a comprehensive basis on which to compare the two.
I remain an admirer of the very high levels of commitment and professionalism shown by many in Ireland's public sector. However, in an ever increasingly competitive global economy it is only fair and equitable that the public sector should operate in a more comparable way with their colleagues in the wealth-earning sector.
Turlough O'Sullivan is director general of Ibec, the Irish Business and Employers' Federation