Speaking on today’s News at One, George Lee pointed to informal evidence from the Central Bank of average wage cuts in the private sector of 8%. He then immediately noted that this raised the question of why there had been no wage cuts in the public sector. (About 3.20 minutes in.) George has a well-deserved reputation as an excellent economics reporter, perhaps the best of his kind on these islands, but this statement was unfair and unhelpful. The pension levy is a wage cut. It reduced the taxable income of public servants by an average of 7.5%, thus putting public sector workers exactly in line with the private sector figures that George is quoting.
As a public servant myself, I am conscious of the need to be careful when making statements about public sector pay. However, the bottom line has to be this. What is useful here is fair analysis of the full compensation package for public servants (including pension packages and the effect of levies) in comparison with the private sector—and the Irish economics profession has provided research of exactly this type. What is not useful is analysis in which a pay cut is real if it happens in the private sector but not real if it happens in the public sector just because someone chooses to call it a levy.
I expect here that I will get a flood of comments linking the pension levy to the generosity of public sector pay packages. But this would miss the point I’m making. There is no link between this levy and public sector pensions. The only real implication of the levy for public sector workers was to reduce their take-home pay. Perhaps this step was needed (and perhaps more is needed) but let’s not pretend it didn’t happen.