Public service pay and numbers should reflect the new harsher realities,writes Turlough O'Sullivan.
Yesterday's Exchequer Returns show some worrying shortfalls on budgeted tax revenue, in particular in relation to income tax and excise duties. Pressures on spending going forward, including benchmarking and other expenditure demands, will make balancing the books this year and next very difficult.
Imagine you are an employer and you reach a pay agreement with your employees.
Then your world changes. Your costs are rising faster than those of your competitors. You are losing ground and your mind turns to saving the business and the jobs it supports. You go back to your employees, sharing with them the facts of the position in which you all are. They know that they have two choices: to trim their sails and put what had been agreed on hold, or see their jobs disappear. When you hit rougher times, you cannot cruise on as if nothing has changed. Businesses, homes, national economies the same commonsense rules must apply.
The benchmarking of public-sector salaries to the incomes of people working in the private sector promised to bring some rationale to public-sector pay. The theory was fine but the logic of it should be followed through.
This benchmarking exercise was undertaken at a time when the economy was buoyant. Things have changed. Redundancies last year were at their highest level since the bad old days of the early 1980s. Jobs were created last year, but worryingly mainly in the public sector. Indeed in the year to the first quarter of 2003, had it not been for an increase of 27,300 jobs in the public sector, employment would have fallen by 800.
Any private-sector company which found itself in the position of the present Government would present the facts to its employees and renegotiate what had been agreed. Although difficult, employees would have limited options in such circumstances and harsh realities would have to be addressed.
Public-sector salaries were not benchmarked to the reality of life in Ireland in 2003. They have not been benchmarked to the incomes of the thousands of people who lost their jobs in the past year. Public-sector life has not been benchmarked to the insecurity that is the price of private-sector employment. Public-sector pensions have not been benchmarked to those of private-sector companies or to those of the self-employed who must fund their own. The public-sector pension is linked to the job just vacated, while for the rest of us the pension is dependent on what we and our employers have contributed over four decades.
I would like to see real benchmarking, where the full picture is considered and any extra payment has a clear link to productivity.
In sectors open to global competition, the pressure of the marketplace forces companies to respond. In 2000, manufacturing output prices had risen by 7 per cent over the previous year. The market place changed, world prices tumbled so efficiencies had to be sought. Costs were trimmed and by 2001 the increase was just 1.7 per cent and by 2002 manufacturing output prices had fallen by 1.2 per cent. For individual managers and thousands of employees across Ireland, this took imagination, stamina and courage. What is exasperating is that while they have struggled and sacrificed to cope with the cut in output prices, general inflation has continued to soar.
While we were pleased to see the decline in the rate of inflation in May to 3.7 per per cent, this is still twice the EU average and is driven by excessive inflation in the services sector and in particular those areas subject to government administration or influence. In the year to May, traded goods sector inflation had fallen back to 1.7 per cent but in the services sector inflation was still at an unsustainable 5.4 per cent. In particular, inflation in education was running at 9.9 per cent, health at 7.8 per cent and utilities and local charges at 7.2 per cent.
Even the most ambitious plans for reform of public services have an uncanny knack of missing the point. For example, there is almost universal agreement that the health board administrative system has become too large for the job it has to do. I was pleased to see plans for streamlining the administration but find it difficult to understand what this means if there are to be (according to Ministers) no reductions in employment. You cannot run any enterprise or service this way.
The number of public servants has risen by over a third in the past eight years. Government should now seek savings of €550 million in current spending through a vigorous programme to reduce staff by 10,000 over the next three years. Before any increase in pay, there must be demonstrable and sustained improvements in productivity. There is nothing unusual or radical in any of this. It is how the private sector works. It is how it survives.
We are traders. The strength of the euro, combined with the unsustainable increases in Irish business costs (insurance, transport, waste management, wages), has had a dramatic adverse effect on the competitiveness of some Irish goods and services on the open global market. If the sheltered sectors do not adapt to the new economic realities, then the costs that they generate, whether through increased charges or taxation, add to the burden on the trading sectors.
We have made extraordinary progress over the past 10 years. A very significant improvement has taken place in our standard of living. Our output is on a much higher plateau and many hundreds of thousands of new jobs have been created. The glass is very much half full. However, it is our trade with other countries that ultimately pays the wages, pensions and social support of every Irish person. If the same realities apply equally to everyone at work, then there is every prospect that we can trade successfully.
Turlough O'Sullivan is director general of IBEC.