As the Government, employers and trade unions prepare to enter negotiations on a new national wage agreement, there is a need to underpin competitiveness in our economy.
That does not mean wages cannot rise. Greater productivity, industrial innovation and scientific advances all offer alternative pathways towards a higher-wage system. But a sense of proportion must be retained if we are to survive increasing competitiveness from low-cost countries. And more must be done to protect consumers from cartels and anti-competitive practices.
In particular, the benchmarking process, which was originally designed to buy industrial peace from public servants in an over-heating economy, will have to be revisited. Research has shown that average pay in the public service is now well ahead of private-sector incomes. And that evaluation does not take account of benefits such as wage-linked pension entitlements and security of tenure for State employees. A second benchmarking process is due to begin later this year and to be completed in 2007.
Minister for Enterprise, Trade and Employment, Micheál Martin, has warned that excessive wage demands would damage competitiveness and undermine economic progress. A competitiveness agenda, he said, had to be central to the negotiations on a new wage agreement. In that regard, he drew attention to a report by the National Competitiveness Council showing that Irish wage costs ranked fourth-highest of the major industrial economies surveyed. Mr Martin would have been on firmer ground in calling for wage restraint had the Government itself not adopted a special pay award of 7.5 per cent last July. The increase was recommended by the Review Body on Higher Remuneration in the Public Service and was paid to judges, top civil servants, hospital consultants, senior academics and politicians on top of the pay terms for "Sustaining Progress".
In spite of such behaviour, the Minister was right to sound a warning. Ireland is one of the most open economies in the world for trade in goods and services and continues to attract extremely high levels of foreign direct investment. If that position is to be protected, we need to practise wage moderation while continuing to invest in education, research and development and to upgrade inadequate transport and communications infrastructures.
Serious difficulties lie ahead. The benchmarking process cost about 3 per cent in personal taxation rates. That transfer of funds antagonised the private sector. And a promised reduction in the number of Government employees never materialised. There is general acceptance that the social partnership model should be reformed. Just how that should happen, however, is unclear. Greater flexibility will probably be required in agreeing national pay terms for the public and private sectors. But the social partnership model should, if possible, be retained. It has served us well.