MATT COOPER THE REAL COST OF PUBLIC SECTOR PAY

SOMETHING is usually better than nothing but the Government may be about to find that the political rewards to it in improving the financial situation of the country’s public servants could be limited.

Discussions started yesterday, a full 12 months before the Haddington Road Agreement, the last negotiated settlement between the public sector employer and its employees, is due to expire. From a purely economic standpoint that is premature: the fiscal emergency that led to the cutting of public sector pay and the imposition of the pension levy is not over.

Economics

The State still has to borrow €4.6billion this year to meet the gap between its income (taxation) and its expenditure. It is borrowing to pay its bills, money that future generations will have to repay. Surely to be still borrowing such large amounts, adding to the national debt, is a touch risky?

How we got to that situation has been well vented, and continues to be, and you can complain all you want about the unfairness of it all and how the architects of the disaster – Bertie Ahern and Brian Cowen are getting €80,000 a year each in a State-funded pension – but as that horrible saying goes, ‘we are where we are’, and that’s what has to be dealt with still.

But that’s the economics. Let’s forget about that, because what started yesterday is all about politics.

There’s an election coming, didn’t you know?

The opening of the pay talks is all about politics. It has given rise to expectations that something will be done for public servants in time for inclusion in the arithmetic for October’s budget and indeed a June deadline has been set. This Government could have left talks to next year, either to be conducted by its successor or have waited to do it itself in the run-up to the general election (which it is assumed will be in the spring of next year but could very possibly still be this autumn). That it has chosen to do so itself, and now, is interesting for a number of reasons.

One is that it sees some potential electoral benefit in having a new deal in place prior to the election. That may seem obvious but it is actually something of a double- edged sword: it relies on the public sector being happy with what they’re getting (and there are no guarantees of that) without alienating private sector workers who may become jealous at what they see as generous awards, particularly if they consider that they’re paying for it.

The second is that it will put pressure on the opposition to either accept what the unions have agreed to – putting them at odds with the unions – or to make promises of spending more State money on pay for public servants if and when the opposition comes to power.

There may be a large constituency of voters who would recoil from that latter idea, believing that whatever deal the Government has struck with the unions is enough or more than enough without adding more onto it again.

Problem

As mentioned, there will also be a number of public sector voters who will not appreciate what they’re being given or offered, even if their union representatives say this is the best that’s available.

A package of some €250million is likely to provide benefits that get little more than a ‘meh’ response from many of its recipients.

What use is, say, just another €5 in the pocket each week? Better than nothing of course, but it won’t go too far, will it, other than to pay the water charges and have one night in the pub?

And this is where perhaps the Government’s biggest problem lies. Whatever it offers – no matter how small – may be considered by non-public sector workers as overly generous and unaffordable.

Worse, it may be likely to provoke envy and jealousy among those private sector workers who have also suffered reduced wages or who have been unable to restore any of the income they have had cut from them in recent years – if they still have their jobs.

Yet the Government has to be seen to be doing something, otherwise it will go to the polls accused of merely implementing the savage cuts of its predecessor without doing anything to mitigate the damage. It created expectations during the last election cam- paign and has to live up to some of them. That it can claim, with some merit, that it has overseen the economic salvation of the country is not going to butter many parsnips of the disaffected voters.

The presentation of whatever it gives to public servants is going to be tricky, to put it mildly, as much as finding an affordable amount.

Odious

There has been talk of reducing the rate at which the pension levy is applied to public servants, for example. This levy is as hated by the public sector workers as the Universal Social Charge is hated by all taxpayers.

However, there is a certain logic to the pension levy that suggests that pay should be restored before the levy is cut.

People in the private sector sometimes receive contributions from their employers to their funds, but often they don’t. They have to fund their own pensions (albeit with some tax incentives to do so, although this is justified in reducing the eventual burden on the State). The self-employed receive no contributions from anywhere else.

The reality is that the last government imposed the pension levy as a quasi pay cut, even though the logic of making public sector workers contribute more to their own defined benefit pensions had logic. It first denied it was a pay cut but then admitted it was, which rather undermined the whole effect. Public sector workers want it removed, so starting the process should win the Government some favour. But it should hardly be the priority.

Straightforward pay increases – or ‘ pay restorations’ as they are being described already because that might be more palatable to sell to the overall electorate – are also on the agenda.

The reality is that they will have to happen now that the process has started. There is a good logic behind the idea of focusing on the lower paid, fairness being just one issue, but the problem is that nearly everyone in the public service has good reason to believe that they are deserving.

People are often on a higher wages for a good reason: they worked harder to get there. And when they compare themselves to the private sector they might not consider themselves particularly well paid either. Comparisons are odious. The public sector boasts that it didn’t strike and worked harder – the private sector responds that many of it didn’t have that option because they just lost their jobs.

The public sector says its members took cuts to pay and staffing levels even though demands for the services were increasing – private sector workers lost pay and conditions because demand dropped or disappeared.

Of course, this is one of the big problems of the debate re- opening about public sector pay. It damages the perception of us all being in it together. It pitches public against private. It divides us. How much does that cost?