WAGE AND salary cuts of 10-15 per cent in all sectors of the economy were required to restore Ireland’s competitiveness, economic consultant Dr Peter Bacon said at the MacGill Summer School in Glenties, Co Donegal.
He stressed that he was not focusing exclusively on the national minimum wage and that a reduction was required across the board because wage costs in general were excessively high. But he added: “It’s a political decision as to how that’s borne across the economy.”
Dr Bacon, who is one of a range of speakers on the economic crisis taking part in this year’s school, said there was no option but to implement the McCarthy report on public service staffing and expenditure.
Asked if he believed the report should be implemented in full, he replied that there had been a discussion as to whether it was an a la carte or a fixed menu: “Well it ought to be an early bird menu.” As the initiator of the plan for the National Asset Management Agency (Nama), Dr Bacon said he did not believe the current litigation involving Zoe group and the ACCBank would delay the establishment of the agency.
Taking an optimistic view of Ireland’s economic future, he said that “all of the pieces of the jigsaw are there” and the “big question” was how to put the pieces together. “It’s not a question of what you do, it’s how to do it.” He was speaking after delivering a lecture entitled The Steps to Economic Recovery?.
He told reporters that, “When you look at the competitiveness indicators for the Irish economy I can’t avoid the conclusion that wage-costs across the economy are too high and that one way of regaining a modicum of competitiveness that we have lost would be for nominal wage cuts.” Commenting on the McCarthy report he said: “The scale and breadth of what’s contained there is consistent with what’s needed. A credible target is desperately needed, both by the economy, for confidence reasons, internally and externally.
“The most critical thing is [to] establish a realistic target, a timescale in which to attain it, but do it, and make sure that we hit that target.
“If we failed on that front, you would get further attrition in confidence, both at home and abroad and that would be bad for the economy.” Asked what he would consider to be a realistic target, he replied: “It’s a three-to-five year job, bringing the deficit down by something like 8 per cent of gross domestic product, and most of it is on the expenditure side.”
There were no other options apart from implementing McCarthy: “I don’t believe there are. There is some scope for broadening the tax-base but it’s very limited. If you’re getting back to an export-led economy, the way to do it isn’t by ensuring that we have a highly-taxed economy.
“We have relied on a low-tax economy and that’s going to be needed; that’s not to say there isn’t scope for broadening the tax-base and for achieving some contribution from taxes in adjusting the public finances, but the bulk of it has to come from expenditure.” Asked if the Zoe group case would affect the timing of Nama or indeed the whole concept of Nama, he replied: “I don’t know, I don’t see why it should.” He stressed that he was speaking from “an economic point of view” rather than a legal perspective.
Asked if the case undermined the plan to establish Nama, he answered: “No, I don’t believe so.” He was basically optimistic: “I feel all of the pieces of the jigsaw are there . . . The big question is how to put the pieces of the jigsaw together. You have Nama on broken banks, you have a report on expenditure [the McCarthy report], we’ll shortly have a report on taxation, you have sector initiatives, you have reports from the National Competitiveness Council about measuring what needs to be done. It’s all there, it needs to be put in place.
‘‘It’s not a question of what you do, it’s how to do it,” he said.
