There is some leeway in the public finances – and the pressure is on from all sides. On Friday another front will be opened when negotiators from the Government and union sides will sit down to discuss the thorny issue of lower pay grades for public servants hired since 2011. This issue was to be dealt with after the current pay deal runs out in 2020, but the unions are pushing for earlier action.
There are a few financial and economic issues here for the Government. First,there is the specific cost – estimated at €200 million – of restoring pay parity, in other words putting all the public servants hired since 2011 on the same pay scale rates as those hired earlier.
Then there is the question of what this will mean for the cost and level of future recruitment into the public service. If we assume that after a deal is implemented for those who have joined from 2011 on, new entrants in future will also be hired at the new, higher rate, the cost of future recruitment will also rise.
Finally, there is the wider context of building pressure on wider public sector pay, of which this is just one part.
For the Government the key economic questions here are affordability, attracting staff and what improvement higher pay delivers in service levels to the public. Getting an economic and social return for any additional spending is vital, particularly in the light of the massive spending splurge of the early 2000s which in many cases did not have a commensurate pay-off in service levels. Arguments for “ restoration” rarely take into account the fact that the pre-2008 public finances were simply unsustainable.
There is some fraught history here. As part of the package of cuts announced in November 2010, the then government announced that the pay levels for incoming public servants would be cut by 10 per cent. The stated reason was to allow some recruitment to continue at a time of a shortage of resources. Few episodes during the crisis are still so sensitive.
The legacy has been a two-tier pay structure, with a report in March from the Department of Public Expenditure and Reform showing that just over 60,500 new entrants affected by the lower pay scales now account for just under one in five public servants.Almost 50,000 of these are in the health and education sectors, with teachers and nurses the two biggest single groups.
How quickly can the Government restore parity? Minister for Finance Paschal Donohoe said last week that overall day to day public spending was already set to rise by €1.1 billion next year, of which €400 million was higher public pay under existing agreements. However it still looks like over €1 billion will be available for extra spending and tax measures, while still staying with EU limits, though the Government has repeatedly warned that all the available funds might not be spent.
This arithmetic will see the unions push for concessions next year, though presumably the Government will resist. In political terms Ministers may feel they can only delay for so long. In economic terms, the Government has argued that there are no signs of general difficulty in recruiting at current pay levels – which would provide a reason to hike pay. This is disputed by unions in some areas. A forthcoming update by the Public Service Pay Commission on this will be watched by all sides. An initial report last year found no general difficulty in recruitment, but difficulties in some areas of the health sector, the defence force and some senior civil service posts.
What of comparisons with the private sector? Successive surveys have shown that lower-paid public servants here are generally well paid compared to their private sector counterparts. This explains why the public sector can continue to recruit. However a key political issue is the relatively high cost of living here and its impact on all lower-paid employees particularly related to housing. The Government, for its part, has pointed out that recent public pay agreements have already granted bigger-than-average increases to lower earners. However the €3,300 average per head gain for new recruits from a move to parity is significant.
For the Government, the parity claims will also be seen in the wider context of public pay demands, both general and sectoral, as unions push for higher pay, a restoration of allowances and other changes to conditions during the crisis. There are big potential costs here, particularly given the remorseless increase in public pay from existing annual increments granted to many.
Trade unions will be eyeing forecasts suggesting significant scope in the next few budgets for higher spending. However the Government will be conscious of other priorities and demands and also of the huge risks, particularly from Brexit. And this comes at a time when our national debt is still relatively high and when annual government spending still exceeds tax revenues.
The danger for the Government is that unions now feel they are shooting at an open goal. There may be economic and fairness arguments for increases over time, but this one is now driven by politics.
