And when the unemployment increases in the private sector (27.6% youth unemployment and rising november 2nd) the spreads get widened by Moody’s and the National debt servicing increases. Aggregate demand falls further, more is paid out at the dole office so I would not regard it a threat that has no consequences when it is realised.

It brings the day closer when pensions and salaries cheques simply bounce and signal the necessity of outside control. Even cheques for as low as 50,000 can bounce. There simply is no money there to play games with any longer. Why is the benchmarking dis-continued in the bad times. Very, very few people on this site have come up with any ideas for job creation being mostly academics, economists or workers in the protected public sector. No one has mentioned the “Who” of tax net widening in the sense of naming the sectors or sections of society they want brought into the tax net. The scope to rescue ourselves is getting narrower all the time NAMA will be a tipping point.

I believe the US got there before them, sort of - taxing bonuses that were given back by AIG’s and others execs under pressure.
http://economix.blogs.nytimes.com/2009/03/27/returned-bonuses-may-still-be-taxable/

@Another John M - “I think you are all fools for allowing the private sector to be set against the public sector.” How quickly is benchmarking forgotten - by some. Not by the private sector, sir.

@ Karl, whether income is being taxed or levied is semantic. in reality, means people have less money!

Accountants, economists may self obsess over whether it is a tax or levy! Instinctively, they feel some advantages might “accrue” if the formulae is applied in a particular manner. For instance, If figures are massaged they may mutate into better quality cannon fodder to throw at the truly frightening statistics of the Irish economy. it may even temporarily assuage peoples fears and give them a false hope, that the latest tax or levy will be the last one.

Meanwhile, there actually is another economy outside of the public sector. It is the one that is shrinking all the time. In fact, the unpalatable truth is, that without this other economy, let’s call it the “shadow economy”, the salaries, pensions, job contracts etc of public servants, would be totally unsustainable and untenable. Contracts become useless pieces of paper. Terms and conditions of contracts mere good intentions if there is no money in the exchequer!

I am getting the distinct impression that there is an arrogance in the public sector that thinks their jobs are sacred cows that will never be killed off by the vast majority of workers that inhabit the “shadow economy”. That the workers in the shadow economy, will just sit and watch as their jobs are killed off, one by one, becoming the latest sacrificial offerings to the bloated Public Sector.

Obviously, it does not suit people on this site to have to acknowledge, that, were it not for the Irish government borrowing 50 million Euro every single day, there would not be any money to pay for the very pensions and salaries that are being sliced, diced, curried levied, taxed call it what you like.

I missed the fact there is no benefit attaching to state employees pension contributions in the calculation and the same applies to your PRSI calculation, because of the same point. If the contributions actually bought something not previously provided then the answer would have been different.

For my own interest, would there be an additional benefit attaching to state employees having their pensions pegged at higher salary levels?

There is no argument that private sector workers face a risk of unemployment not faced (so far) by the public sector. But Lee didn’t say that the public sector should take pay cuts because they’re not losing their jobs, he said that they (we) should take pay cuts because the private sector are.

On the tax treatment point, I’m confused. Say my marginal tax rate is 50%. Say I now have to pay extra €100 pension contribution. Since this isn’t taxable, my tax falls by €50. Net effect: I’m down €50. Now instead, say I have a wage cut of €100. My tax falls by €50. Net effect: I’m down €50. Tax deductibility of pension contributions is precisely what makes them equivalent. What am I missing?

(My point about the effect of a pension levy being bigger than a wage cut of the same size goes like this: Marginal tax rate is still 50%, but on top of taxes I also pay 10% in PRSI contributions and levies, which are levied on all income, taxable or not. An extra €100 pension contribution still reduces taxes by €50 and leaves me with a net effect of -€50. A wage cut of €100, on the other hand, will cut tax paid by €50 and PRSI/levies paid by €10. Net effect: -€40).

I agree that the pension levy is a pay cut and it would have been more honest to apply it as such, however two points arise from your analysis.

Have you factored the people who have been made unemployed in the private sector, 100% pay cut, into your analysis? Is there a comparable in the public sector?

Furthermore, the tax treatment of a pension deduction is not the same as a pay cut. The levy is tax deductible and a salary cut is not. PRSI as an additional net cost will only arise where tax is not being paid. I understand that this may be the case for many public sector workers but not for all.

so put a figure on it versus the private sector, and i can tell you that a public sector pension is not only good, its great, its the best. The two tiered system is a sham and the forward obligations of a Defined Benefit scheme with a public sector that is vastly overblown in size will just break the camels back some day in the future. The sad reality is that the defined benefit schemes that many are working so hard to protect will likely go broke to the detriment of the very beneficiaries who fought to defend it.

I don’t have the answer, but all the piety of ‘poor public sector pays for their pension’ doesn’t wash with me because the figures don’t stack. disagree? then I’ll swap my pension with yours, no questions asked.

In other words, the government are “negotiating” with trade unions who also represent the government.

This has never been about Social Partnership. It has been about the unions who represent Public Sector workers helping itself to the public purse, ably abetted by a government who salivated as the unions “negotiated” the latest round of benchmarking.

This carry on, besides being totally undemocratic, has led to near bankruptcy of the state. I don’t expect leopards to change their spots or Damascus road conversions. After the forthcoming general elections which will be totally inconclusive we will have IMF or ECB to help concentrate out minds. So, I will just sit back and wait until then!

Is it really asking so much that the public sector workers live in a world that experiences at least some of these harsh realities that the private sector workers are facing every day? Is it really such a bizarre notion that some form of cyclicality is brought into the public sector pay bill? Is it really such a terrible suggestion that public sector workers, who fought so hard for a benchmarking process that brought their pay in line with the private sector, should experience some of the disadvantages of the private sector as well?

For a back-of-the-envelope calculation that might take account of the firm-size differences, I had a look at the firm size distribution of employment in manufacturing, and about 20% of employees work in firms with less than 50 workers (Eurostat website figs for 2006). Say we assume that 40% of those firms have applied a wage cut of 13% and 20% of larger firms have applied the same cut (the latter figure is completely made up). That would give an average wage cut of 3% (.13((.4x.2)+(.2x.8))).

So I still maintain that 8% average cut in the private sector is high. For sure, cuts are happening, and they are a very welcome indication of labour market flexibility in Ireland. But I don’t see how it helps to introduce made-up numbers into the argument; the real ones are argument enough. I think further public sector pay cuts may be needed, but not because of exaggerated private sector cuts.

I completely concur with Karl that the pension levy is a pay cut. In fact, although the average pension levy was 7.5%, this had an effect closer to a 10% pay cut, since an increase in pension contributions reduces the amount of tax paid, but not the amount of PRSI or levies; a pay cut would have also reduced the latter.

2. Non-pensionable pay is also subject to the levy.

3. Public sector pension contributions (pension levy plus 6.5% superannuation charge) flow back into the government’s coffers and are not allocated to a distinct fund. This means that in some ways public sector pensions are the least safe, or indeed guaranteed, pensions in the state.

while you’re right that the pension levy has reduced real gross wages by 7.5% (and net wages by 4.5% or so), the reality is that they have been receiving a massive subsidy for years in regard to pensions, and this is simply the first step to fixing this discrepancy. That an actual headline decrease in gross wages of a further 5-10% is possibly justified in the same year as the pension levy is an unfortunate, but honest, suggestion/proposal.

We can either accept and deal with the reality of public sector wages being still far far too high, or we can teeter merrily into the oncoming abyss, claiming that public vs private sector ‘class warfare’ is being enacted by IBEC and is the real root cause of the problems before us.