Civil Service Pay Cuts Not the Answer

Many civil and public servants contributed to the property bubble through spending their money on property. So did many other sectors of society. If we are going to exclude them all from having to contribute to the fiscal solution then we will be looking for approx €1million per annum from each bank employee in the country and many of them will have a valid defence that they had no influence on lending policy.

“But just as we sought equality of treatment during the Celtic Tiger, we are also seeking fairness in the new economic context.”

I can only assume he’s advocating massive job cuts in the public sector in light of this need for equality!! What per-centage of the private sector work force has lost their jobs in the last 2 years? 200k on 1.8mio, so roughly 11% or so? So 35k public sector job cuts then Dave?

a preemptive strike on soon-to-be-published findings of Review Body on Higher Remuneration in the Public Sector

pathetic piece

The standard line of defence “public servants did not cause the economic crisis” is particularly disengenuous coming from the Gen Sec of AHCPS. It is easy and lazy to moan about the malign influence of the “permanent government”, but it is the role of senior civil servants not just to obey ministers, but to inform, guide and advise them as they seek to implement policies for which a democratic mandate has been secured.

The Taoiseach has publicly defended the economic record of this and the two previous administrations – and, particularly, his economic stewardship as Minister of Finance and, subsequently, as Taoiseach – by asserting that decisions were made on the “best policy advice”. Apart from some likely limited external advice (from international bodies and/or consultants), it is probably safe to assume that most of this advice was provided by the senior ranks of the civil service.

I found it hard to believe that all of these senior officials were completely happy with the government’s policy and fiscal stance. They cannot have been unaware of the various warnings of independent informed commentators about the unsustainability of the property bubble, of the banks short-term money market financing of the fiscal stance. I realise that it is extremely difficult for officials to confront a determined and wilful minister with the possible detrimental impacts of a particular policy course, but we don’t need “Yes, Minister” to recognise that senior officials are not without influence.

It would be surprising if expressions of dissent by senior officials were made public, but, if some dissent were expressed it is unlikely it would be completely suppressed. Often its effect is seen in subtle variations in policy implementation (not precise u-turns, of course) and delays in bringing legislation forward. In my view, there were a lot of dogs that didn’t bark. Before presenting his reprise of Pontius Pilate, Mr Thomas could usefully ask his members involved about their role in providing the “best policy advice” to government.

I realise the culture is very different, but the role of Brooksley Born in the US in confronting the imperium of Greenspan et al when they decided on minimal regulation of derivatives in the late 1990s is enlightening. She may not have won – and we are all the poorer today because she didn’t – but she certainly was a dog that did bark:
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/25/AR2009052502108.html

“Group-think” without adequate transparency or scrutiny led to this mess; and there is little interest in addressing this systemic failure.

While, as a general rule, I’m not in favour of public sector pay cuts or social welfare cuts, a cut in either is hardly as onerous when inflation is strongly negative, -6.5% on the CPI and -3% on the HICP, as when inflation is +3% or +5%. In 2009, it would be possible to cut both in nominal terms, thereby saving the taxpayer billions, while leaving them uncut in real terms.

One of the problems in Ireland, which I have referred to in other threads, is the very poor quality of economic forecasting, particularily by the official bodies. I just looked up Brian Lenihan’s budget speech from Oct 14 last. This is what he said:

—-“inflation will ease to 2.5% on average for the year 2009”

I’m not sure if he was referring to the CPI or the HICP. I think it was the CPI. Either way, had he predicted his ancestral county of Roscommon to win the All-Ireland in 2009, that would have proved a more accurate forecast than his inflation forecast. On the CPI measure, inflation has eased to -6.5% and will average -5% for the year. On the HICP measure, inflation has eased to -3% and will average -2% for the year.

This inaccurate forecast has proved costly. Both public sector wages and social welfare benefits were increaed by 3% in the Oct 2008 budget on the assumption that, as Brian Lenihan predicted, inflation would only ease to about 2.5% in 2009.

I’m not blaming Brian Lenihan personally. I assume he doesn’t sit up at night with his calculator working out such forecasts himself. It was probably economists in the Department or in the Central Bank that provided him with that forecast. Why aren’t they being called to account? Even last October, many of the small stockbroking firms were predicting that inflation would be strongly negative in 2009, as the factors causing it (the fall in oil and commodity prices, and the fall in sterling v the Euro) had allready occurred by then.

From an economic and, indeed, social justice point of view, the obvious thing would be to cancel the 3% increases in public sector wages and social welfare benefits granted in 2009 on the false assumption that inflation would still be 2.5% in 2009, instead of -6.5% (CPI) or -3% (HICP). That would still leave both groups among the few in the developed world enjoying increases in their real incomes in 2009. However, I see a political problem there, in that, were the Government to do so, the Irish Times would be running stories next week on how social welfare recipients in Ireland were now only surviving by eating their children, even though their incomes would still be higher in real terms than a year ago.

“we didn’t cause this”

right up there with another of my favourites:

“sharing the pain”.

One way of putting it, a la zhou:
“. . . public servants contributed to the property bubble through spending their money on property”.

Another way of putting it:
“. . . public servants bought houses to live in. They did so at prices determined by a market manipulated by bankers, developers, speculators and estate agents under the light supervision of their governmental admirers”.

” . . . public servants contributed to inflation by buying food at the artificially high prices determined by grocery chains”

” . . . public servants contributed to global warming by travelling on big, belchy buses.”

@yoganmahew
Fair point about the mandarins – but this isn’t about whacking them.

@Peter Maguire

Civil Servants and Public servants did more than buy houses to live in. Many of them also bought investment properties and bank shares.

For what its worth, I very reticent generally against cutting the wages of relatively low paid (<€35K) civil and public servants.

Gee, to read this blog, you’d think it was pure paranoia to think that a political decision to scapegoat the public sector had been made in the highest circles of government and industry. But it is patently obvious to anyone with eyes and ears that just such a campaign has been ongoing for months now.

Allow me to present a more charitable reading of the claim that ‘we didn’t cause this’ from my own non-privileged perspective:

1) Far from the public sector having been bought off during the boom years, the trade unions were repeatedly given pay deals that kept up with neither inflation nor growth. They were then mollified, along with the rest of the electorate, with giveaway budgets and the slashing of income tax rates.

2) The shortfall in income tax receipts was made up by transaction taxes like stamp duty.

3) It is not the case that public sector expenditure ‘exploded’ during the boom years as the OECD report on Ireland’s public sector makes clear. I cite p. 52:

Despite major spending increases over the past 10 years, expenditures in the public domain, i.e. services funded by government and provided by government or the private sector, are small as a percentage of total GDP, compared to other OECD countries. This is because Ireland has traditionally had a small public sector, and so recent increases have been part of a process of “catching up” to more typical OECD levels. For example, amongst 25 OECD countries for which data is available, Ireland ranked third to bottom in terms of public expenditure as a share of GDP in 2005 with 34.4%, above Korea (28.9%) and Mexico (19.5%) (Table 2.2), even when factoring in infrastructure investment.

There follows a very nice table that I recommend everyone here peruse. It shows that, in 2005, Ireland’s public sector expenditure as a percentage of GDP at 34.4% is below the OECD average of 42.7% and below the median of 42.9%. Sweden, France, Denmark, Finland, Hungary, Belgium, Austria, Italy, Portugal, Germany, the Netherlands, the UK, the Czech Republic, Poland, Iceland, Norway, Luxembourg, New Zealand, Canada, Japan, Spain, the Slovak Republic, Greece, the United States and Switzerland all spent more in 2005 as a percentage of GDP than did Ireland.

Even taking GNI instead of GDP, Ireland (40.5%) still spent below the OECD average (42.7%).

Also worth noting on p. 53 of the same report:

Given Ireland’s strong economic performance, however, public expenditure as a percentage of both GDP and GNI has actually decreased over the past 10 years. Ireland’s real average annual growth rate in public expenditure between 1995 and 2005 was 5.1%, and was therefore actually growing slower than both GDP at 7.5% (Figure 2.5) and GNI at 6.6%. Although spending on education increased annually on average by 5.52% between 1995 and 2005, for example, its relative share of GDP decreased from respectively 5% to 4.3% of GDP and from 5.7% to 5.1% of GNI over the same period.

I have no reason to believe that public sector expenditure ‘exploded’ between 2005 and today, especially when the so-called ‘pensions levy’ is taken into account.

3) Ireland is and always has been undertaxed by international standards. Although I don’t have statistics to hand, I believe that the tax burden decreased over the boom years.

So here’s how I see it: far from a spending spree on the public sector, Ireland engaged in, over many years and for reasons having to do with the electoral politics of the Fianna Fail party, a series of giveaway budgets that reduced taxation levels below what was prudent. When stamp duty and other transactional tax receipts collapsed, the very same electoral political considerations dictated that tax increases (those, for example, that would bring Ireland’s taxation rates into line with our fellow EU members) be avoided at all costs. Instead, it is politically more expedient to find a minority to scapegoat. If it had been the immigrants, I suppose it would’ve been significantly uglier, but that doesn’t mean it’s a pretty sight when it’s the public service.

As a result, we have this orchestrated campaign–in which this blog participates–to demonise the public service. One need only read any issue of the Sunday Independent in the last 10 or 11 months to get a sense of how concerted the effort is. What’s driving this effort is the harmonised interests of the business lobby and the Fianna Fail party. The former above all does not want to see its taxes increased to anything close to what simple fairness would dictate. The latter would rather piss off a small subset of the electorate that tends not to vote for them anyway than to piss off the entire electorate–public sector included–by demanding that the burden be shared equally among all, including the corporations and, yes, the public sector (who pay tax too, after all).

But since we’re picking out our favourite mindless slogans, here are two of mine:

‘we pay your salaries’ (as if the fact of paying income tax, which PS workers also pay, amounts to ‘paying salaries’; if it does then PS workers can also claim to ‘pay their own salaries’ which of course makes no sense)

‘€400 million a week’ (as if that were what was being borrowed solely to pay PS salaries; this mantra also takes it as established incontrovertibly–no doubt thanks to the parti pris of some of the very contributors to this blog– that tax revenue cannot possibly be increased)

@ Paul Hunt

are you sure we shouldn’t at least consider whacking politicians? Like literally, with large pieces of wood?

@Eoin,

I recognise the temptation is strong, but the ballot box has to be the only instrument. Now that this option seems to have been postponed for some time, I think the focus should be on ensuring that the fiscal and economic adjustments have some underlying economic rationality – governed by the application of equity and fairness. Although there is requirement for a major reform of democratic governance in the medium term, particularly, in relation to the formulation and scrutiny of economic policy, in my view some elements of this are required immediately.

@Eoin

Defence was 1.6% of gov’t expenditure in 2005. It’s too small to do what you’d like it to do.

@Ernie

You might as well quote the figures for Outer Mongolia, so irrelevant are the 2005 GNI/GDP figures to this debate.

Public spending has increased *substantially* since 2005. But the GDP declines in ’08 and ’09 mean the real economy is right back where it was in mid-2005.

So where do you think the percentage of GDP/GNI consumed by the public sector has gone since those figures you quote were compiled? A little north? More like a lot.

If data are to be bandied about, lets ensure at least a modicum of currency.

@ Proposition Joe

If data are to be bandied about, lets ensure at least a modicum of currency.

Was this also your reaction to various ESRI and CSO reports on public sector pay released in recent weeks that relied on 2006 (i.e., pre pensions levy) data? Or were you instead citing them as proof that you are right to grind that axe?

And if you make the claim that ‘public spending has increased *substantially* since 2005’, I’m going to have to ask you to provide the data to back it up. Too much of this debate is dependent on what ‘everybody knows’.

@Proposition Joe;
Unfortunately the recent ESRI report cited here also gave us a comparison of 2006 public sector premium. I did not read a single comment calling for a “modicum of currency” in that thread.

I agree wholeheartedly with Kevin O’ Rourke’s take on this. I’ve said this many times before, if Biffo came to the people tomorrow and said, all ministers are taking a 50% cut, all TDs and senior civil servants a 25% cut and we are asking all other PS workers to take a 20% cut, I doubt it will cause as big an uproar.

Word never mentioned in the article despite its references to the private sector — pensions. Just a complaint about the levy.

And not a word about the status of that “wider process of modernisation and change” that was supposedly a part of benchmarking.

Besides the particular sentence you focused upon, i thought it was a fairly reasonable article, which doesn’t make a case for special pleading -only fair treatment.

Also, i think it’s important that we don’t lump every public servant in the same bracket. The wages of a soldier or a cleaner are very modest. If anything, they are less than their private sector counterparts (albeit with job security). Whereas the wages of University professors and gardai seem outlandishly inflated. We need to get past this whole narrative of ‘public sector’ as some sort of catch all group and start looking at specific sectors and wage agreements.

We need to look at reducing wages in areas where people are genuinely overpaid, we need to look at reducing numbers in areas which are no longer important to us, but we should also avoid degenerating into a lynch mob where all state employees get their whole employment package cut simply because the exchequer is in trouble. Even private sector companies have to play within the labour laws set down, and submit to Labour Court rulings. Part of the venom in this debate was caused because the State excused itself from these normal channels of mediation when it brought in the Pension Levy through legislation earlier this year. If it had played by the rules, it could have cut payroll without inflaming its employees to such an extent.

@Kevin O’Rourke

I agree on the audacity of the bubblists in now lecturing on the remedies.

Not having partaken of that hemlock, I can claim some moral platform but as my father used to always say — self-praise is no praise!

The problem with this issue is that when the facts are unpalatable, they are ignored and it’s always easy to pull something from the ether.

Irish Times Kathy Sheridan’s interview with Bertie Ahern last Saturday: “So for example, while his economic legacy may well be the perceived ATM facility he presented to the public sector, as well as Fianna Fáil’s enchantment with house-building, he cannot see a downside to either. Yes, he was shocked to read how the public sector had raced ahead of the private in average incomes. The thing is, he doesn’t believe it. The authors are not comparing like with like, he says, ‘since private sector people get VHI, car allowances . . .

Then he’s off – but is suddenly back with a Central Statistics Office study, which shows that national pay agreements between 1997 and 2009 left the private sector ahead by 10%. So the 9% from benchmarking simply bridged the gap. That’s all. ‘So I don’t know what they’re talking about,’ he says, mystified. Well, um, it’s that like-with-like thing again . . . How do you argue with a man intent on burnishing his legacy?”

Dave Thomas, Irish Times Monday: “Benchmarking remains one of the great misunderstood phenomena of the Celtic Tiger era.”

ESRI published paper 2004:

Public-Private Wage Differentials in Ireland, 1994-2001.

http://www.esri.ie/publications/search_for_a_publication/search_results/view/index.xml?id=2325

The authors estimated that in 2001, the public sector premium comparing similar jobs was 13%. Public sector premiums in the late 1990s were in the range 4-6% in France, Italy and the UK.

The paper noted: “A curious feature of the PSBB’s (benchmarking) report is that it furnished no specific justification for any of the pay increases it proposed. Instead, it provided a generalised rationale for its corpus of recommendations that echoed its terms of reference and cited a number of broad considerations.”

Thomas hits the nail on the head with the reference to “determined on the streets.”

The typical private sector worker, without an occupational pension and no weight of collective power to lean on, can be lucky and get true to RTE’s Liveline. He or she may get ladled with empathy from a multimillionaire on the public payroll, Joe Duffy, but what value would one put on that?

@Chameleon

After the average award of 9%, while ignoring the value pensions, the premium increased.

So why were special adjustments needed in 2007?

Besides cost of living increases isn’t there also an annual increase for each year of service up to a maximum?

What was absolutely bizarre in 2007 was that the SG of the Taoiseach’s Dept who was in charge of the first benchamrking process got a 25% pay hike and the pensions of 3 predecessors were also increased by 25%.

The Dublin City Manager was less than 2 years in the job and he got a 36% pay hike as did his 2 living retired predecessors.

A little inequity here compared with the majority of private sector workers who have no pension and some of those who have are subject to the vagaries of the market?

The McCarthy report also provided examples of gardai who can retire at 50 on a full public pension and then take a job or run a business; an individual can be appointed a judge at 55 and retire at 65 with a full public pension indexed to currrent pay levels for life.

These sort of issues do not register with people who take them for granted.

How many people who have never experienced the fear of running out of money in the modern economy, can appreciate the misery that economic mismamagement has brought to the lives of the 200,000 who joined the dole list in the past year?

@ Prop Joe,

My response was probably ambiguous, there was as you point out an earlier award.
However, John’s statement was “Both public sector wages and social welfare benefits were increaed by 3% in the Oct 2008 budget “….
and it was this common misconception which I was attempting to rectify.

Some historical data on public sector pay 1970-1987:

Is the Irish public sector a burden? O’Riordan, William K.
Jan-1989
http://hdl.handle.net/10197/1376

Macroeconomic and fiscal deviations from plan 1985-87. Honohan, Patrick
May-1987
http://hdl.handle.net/10197/1369

As regards responsibility, one issue in common between senior managers in the public service, the central bank and the private sector banks, was that nobody took a principled public stand and shouted stop.

It is usually a very costly thing to do and most people go with the flow, because more often than not, it pays dividends to keep your trap shut.

It’s also worth noting, that payoffs for failure, were also comparable.

@Proposition Joe

I don’t know how you can look at those figures and come to the conclusion that the problem is profligate spending rather than a complete collapse in revenue. Most shocking of all is the meagre pittance the government collects in corporation tax and capital gains tax. Yet in between the relentless demonisation of the public sector there is no talk whatever about increasing the corporate and capital gains tax rates. ‘Oh no, we need them in order to poach, er, attract multinationals’. Is it Botswana we’re competing with with that tax rate or is it Uzbekistan?

I also read with interest the Ronan Lyons article that LCR linked to. In it, he writes this:

OECD figures show that all in, amazingly, a married worker with two children on the average industrial wage in Ireland not only pays no tax but is actually subsidised by the state. Contrast this with the typical OECD country, our economic peer group, where the average earner pays 20% of income in taxes. This undertaxing of workers is a phenomenon that has developed since 2000, mostly through changes in the tax credits – as opposed to the rates themselves.

Yet, strangely, I don’t read in the Sindo or the Sunday Times every week article after article insisting that we are undertaxed, never mind even a single article not penned by Gene Kerrigan suggesting that our corporate tax rate at 12.5% is criminally low. Why would that be?

@Aidan McGrath
Is bertie saying that lehmans made a balls of it?
@Zhou
Yes, indeed. Much better that those dastardly minimum wage earners pay tax than , oh, we remove the subsidy for upper middele class parents on sending their offspring to college.
@Ernie Ball
The fall in CGT may, just may, be down to the almost total lack of ,well, capital gains, last year

@Garo

Clerical employees in industry – – like-for-like in terms of jobs and company size:

Weekly earnings index base Sept 2000=100

June 2007

Electricity/gas 160.0 (ESB/Bord Gais)

Chemicals, chemical 134.5 (multinational dominated- Pfizer etc)
products
Optical/electrical 131.2 (multinational dominated- Intel/Dell etc)
equipment

http://www.cso.ie/releasespublications/documents/earnings/current/indearn.pdf

Table 7

@Michael:
Well ESB/Bord Gais are nominally independent aren’t they? And i have written against their rent-seeking earlier today.

BTW, I think that public sector pay should be cut but starting at the top. In fact I think public sector pay should be capped at 150k as an emergency measure and public sector pensions capped at 60k. No exceptions.

But we should also raise taxes including that holy grail – corporation tax.

Anyone who argues that the budget can be fixed through cuts only or through increased taxes only is delusional. We need both.

@Ernie

Back of the envelope observation on the figures I gave above …

The cumulative outstriping of GDP by public spending during the period of Cowen’s stewardship at Finance (2004-2008) resulted in expenditure ending up ~15% higher than it would have been had it simply tracked growth in the real economy.

OK before anyone jumps on that, I know there are all manner of multipliers to consider, and that GDP itself wouldn’t have grown as much had Cowen not being spraying petrol on the fire.

Still, its instructive to note that if he’d tried to be a tad more cycle-neutral in fiscal policy, as opposed to crazily pro-cyclical, we would have a much, much smaller adjustment to make.

@ Garo

my point is that they already make up a huge amount of our tax revenue. It seems a bit bizarre to complain how ‘meagre’ this revenue is. Should we aim for 30%?

Also, ignoring the corp tax and looking just at capital gains: it made up 6.57% in 2007 and 6.8% in 2008 of our total tax revenue. Comparison UK figures – 0.9% in 2007 and 1.2% in 2008. Our NOMINAL capital gains receipts are actually in the same ball park (3.1bn Ire vs 3.8bn UK 2007) as the UK’s nominal cap gains receipts despite them having an economy roughly 10 times the size of us!

The evidence seems to suggest that it is people at the lower end of the public sector pay scale that are the most overpaid, relative to the private sector.

Much is made of the importance of “sharing the pain” – a 5% pay cut is more acceptable to people on lower wages if people at the top get a 10% cut etc.

However, I for one would prefer a 4% pay cut while the top brass get a 0% cut, to a 5% cut while the top brass get a 10% cut.

Much of the recent discussions about public sector pay and budget cuts has been based on figures which included semi-state commercial bodies. This is obviously faulty inasmuchas the State does not pay the wages of these workers (ESB, Bord Gais etc.)

@ Zhou

i thought it was higher, or at least the average earnings were higher (ie including overtime etc), more like 100k? And that per employee costs after pensions, prsi etc were more like 144k, at least in some of the bigger power plants. And people wonder why we have the highest energy costs in Europe…

Apologies, my figs above were 2006 and 2007, not 2007 and 2008.

We only have two semi stable taxable factors in the economy which we can yield predictable and at least semi-sustainable material revenue from – personal incomes and personal property assets. Even these are probably running at 80% (unemployment and lower personal earnings) and 65% of peak values respectively.

Beyond this we have a somewhat-predictable cyclical factors like VAT, corporate profits and exise duty. However i’d imagine that the corp tax receipts from the banking and construction sectors were probably running at close to a billion per year (higher?) at the peak, and i think we’re all very honest about these not returning to anywhere near the previous levels for some time to come (banking), if ever (construction). We also know that VAT levels have fallen off a cliff, and certain inputs to this (cars, houses) are not going to contribute as significantly in the next few years as they have in the past.

After this we have the highly cyclical and possibly temporary/one off revenues relating to stamp duty and CGT. These will probably not approach peak levels for a couple of decades. Maybe never.

As such, if we refuse to reduce public sector & social welfare expenditure levels by a truely significant level (20-30%), then the only rational alternative is to increase the only predictable and sustainable taxes, those on personal income and personal property wealth, and to do so significantly. I just wish those who are against the public sector pay cuts would be honest about this and stop claiming this is all about class warfare or a ruse from IBEC etc.

So, to those who are against public sector pay cuts, can you provide more details on how high our new taxes should go and what they would yield us? In particular i’d like you to suggest where the new income tax, CGT, corporation tax, and property tax levels should be pitched, and how much of the fiscal deficit would be closed from this.

@ jl

i appreciate the honesty, because there needs to be an honest debate here. Most of your provisions would have a significant effect on middle class ireland, directly and indirectly (via their employers). Rather bizarrely, its probably more honest and detailed than anything that SIPTU or the other unions have put out recently, or the likes of Vincent Browne/Fintan O’Toole have been willing to go on the record about. They like to paint all their vague policy proposals as affecting only the super-wealthy, but in reality the only way you can raise the 10bn or so thats required to close the gap is to massively tax the moderately well off middle tax.

Just to clarify what i think of your actual proposals – well some of them seem off the wall to be frank. A 10% wealth tax, a 1% levy on large deposits, the eradication of all pension tax relief, 40% CGT? Wow, no need to worry about investment or savings in the future – lots of deposits would have negative real interest rates right now! A 60% tax on the ‘rich’ – wouldnt €75k include a very large portion of the public sector (30%+?)? Is it now fair game to describe a large portion of the public sector as rich? Never mind the 40% tax on banks. Forget about any foreign investment, or employment, in that sector any time soon.

Please can someone explain to me why we have such things as incremental salary scales in the CS/PS. If you are capable of doing the job on day one well then that is your salary. If you are not competent then why are the CS/PS employing idiots that take 5 years or more to get up to speed. For example at the higher level there are scales ranging from €89,000 to €119,000 over 5 years. The Government can start by getting rid of these ridiculous incremental salary scales. This is the main reason why Public Sector pay YOY has increased this year when it is supposed to be under the cosh.

Whatever about Bertie’s Lehman having “testicles everywhere.” One thing is sure, Bertie did not have the testicles to stop the public service from expanding at an alarming rate between 2001 – 2006. Of course there was an election to be won.

According to Michael’s Finfcts team and analysis done in June 2006. The elephant in the room, increased by 59% between 2001 and 2006. Payroll was up 18% while Pensions were up a staggering 81%. Dave Thomas and his beareded colleagues, were obviously playing a blinder! But it it no good playing a blinder for 10 minutes if you are going to loose the game, will the pensions and salaries have to be defaulted on at some point in the future?

It is time, the country copped itself on and stopped begging for the lend of 500 million Euro from foreigners every 7 days. Somebody is overpaid because half the money being borrowed is swallowed up for salary purposes and we are unable to raise that money internally.

Everybody maintains their sector, their group, their members are not overpaid.
I believe you all and there is an olympics coming up.

if nobody is overpaid, do we just cut our cloth to measure and stop borrowing 500 million every week, 50% of which we are told, is going on salaries. Maybe it suits to talk about it while the debt clock ticks away.

What about the fact, that part of the salaries paid this month and every month, have to be financed with interest on government bonds that don’t come cheap. Can some expert work out what the real cost of these salaries are when you add on the interest payments spread out over a time sequence covering the lifetime of the debt. Imagine McDonalds borrowing to pay wages, it would soon close down!

A 10% wealth tax is absurd.

No country in the world has anything anywhere close to that level of a wealth tax.

France has the highest I’ve seen at 1.8%
http://en.wikipedia.org/wiki/Wealth_tax

The problem is not so much the level of pay at higher levels in the ps, since the numbers are relatively few. It is at the lower grades that the cuts need to be made in that a)they will have the largest monetary effect and b) that we see the greatest premia vs the private sector.
This was shown clearly by Anthony Murphy’s (Oxford University) unpublished review of Benchmarking 2.

For example a clerk at the top pay scale earns c. 37k. They are also entitled to a pension valued at approx 1 million towards which they will have contributed very little.
A clerk in say a shipping company would be lucky to earn 25k, no pension, high stress, risk of job loss and no annual increments!

Yes, there do need to be cuts at the higher levels to show leadership, but the only way through our budgetary impasse is to make meaningful cuts in the ps wage bill.

@ Proposition Joe

So, if I put together the OECD figures and your figures, here’s what I get.

From 1995-2005, Public Sector spending did not keep pace with growth in either GDP or GNI with the result that the public sector represented a smaller portion of the economy in 2005 than it did 10 years previously.

In the last few years of that 1995-2005 period and continuing to 2008, public sector growth has outpaced GDP growth (according to your figures), in particular, I would imagine Social Welfare expenditure.

So we have 10 years where it doesn’t keep pace with GDP and a handful where it outpaces GDP and suddenly we’re all supposed to take on the countenance of Edvard Munch’s “The Scream”? Why is this not just the sort of countercyclical scenario that we’re all supposed to hope for?

Except, I forgot: during those years that the public sector was shrinking relative to the economy, the gov’t was giving the money away, buying elections by means of annual cuts in tax rates….

@Eoin

Yes, I am saying that CGT and corporate taxation rates should be increased. Is there any justification for holding the latter at 12.5%. Again, who do we think we are competing with with that rate? Montenegro?

why doesn’t the state just privatise a portion of the infrastructure it already owns – sell it to the Public Sector members who then manage it (as they already do) as a profitable activity and not rely on tax take for funding? that way nobody could tell them what to do. leaving us with only the no-alternative-but-state-run activities and that can be managed more closely.

why does CIE strike every single year? If the workers there owned the buses it wouldn’t happen, a huge problem here is that everything becomes a problem that should be fixed ‘by the state’, is that an answer typical of an entrepreneurial or knowledge economy?

@Ernie and Prop Joe,
Could it be that protagonists on both sides of the argument need to get ‘real’ – we need to raise more taxes AND cut public spending. Frankly, I cannot see how the gap can be bridged with one of these measures alone.

@Ernie

Oh, there’s further scope for tax increases all right, but unfortunately only limited head-room remains for the old-reliable group that has taken the brunt of the tax hikes so far.

Lets say we agree that Northern European levels of taxation are appropriate for this country, and ignore the awkward fact the PS delivers nothing like the corresponding levels of service.

I’d agree that some new taxes could be levied on wealth, but there are issues (political and otherwise) with a residential property tax.

The corporate tax rate is not going anywhere, so we can forget about that. Were it not for the MNC sector we’d be in very deep do-do right now and there’s no way the political class will countenance owt but tinkering on that score.

So lets assume that the bulk of the adjustment will come from income tax. For illustration, lets imagine graphing the tax wedge at all income deciles and compare with the corresponding figures for the germano-nordic neighbours we seek to emulate.

Hmmm … zooming in on the mid-portion of the curve reveals we’re not that far off. The problem is that yield falls away rapidly from the ideal on both the low and high tails.

Grand, says you, lets close the loop-holes and de-roof the tax-shelters! Absolutely, I agree, but that still leaves a massive elephant in room. You, I and Ronan Lyons know who I’m talking about. The problem is that keeping the just-below-average wage earner out of the tax net has been an article of faith in Irish politics for at least a decade. Attempts were made earlier in the year to fly kites in that direction, but they didn’t really gain traction (or should it be altitude?).

Until we confront this issue, there’s no way we can go anywhere near closing the gap via taxation, despite your union telling you it’ll all be OK if only we’d tax cigars and caviar.

@Proposition Joe

Lets say we agree that Northern European levels of taxation are appropriate for this country, and ignore the awkward fact the PS delivers nothing like the corresponding levels of service.

Do you think they’d stand for prefab schools for one minute in Denmark? You’ve got it exactly backwards: we don’t underfund our PS because it underperforms; it underperforms because we underfund it.

It never was and still is not funded at anything near the sort of levels that could deliver Nordic levels of service. The gov’t seems to have decided on Boston levels of taxation (more like Alabama, really) while attempting, feebly, to have Berlin levels of public service.

That said, I don’t disagree with any element of the rest of your analysis other than the insistence that the corporate tax rate must remain untouched. Again: what country is that 12.5% rate supposed to undercut? Oh, I know: it has to be that low to compensate for our poor infrastructure. Well, see above…

We also agree about the impossibility of keeping the average worker out of the tax net. It’s completely anomalous and obvious. But here we come down to the nub of the issue: because the elephant in the room cannot even be named (for political reasons) the gov’t has chosen to wage a proxy war against the public service. They would rather scapegoat 330,000 PS workers than have every average worker in the country on their backs. So the more emotions can be inflamed about the PS parasites living comfortably off the backs of the working stiffs (never mind the ones who aren’t paying any taxes but are being subsidised), the better it is politically for the governing parties.

Pity the selfish PS workers don’t seem to want to play along, isn’t it?

@Ernie

On the room-dwelling elephant, the other main issue is that the PS unions have got themselves into a bind on that score.

On the one hand you’ve got outfits like the CPSU and SIPTU who represent workers who are *both* just-below-average earners *and* public servants.

On the other hand you’ve got the labour aristocracy element, who for years have been masquerading as social crusaders when in fact their only aim has been improving the lot of their own well-paid members. Which makes it very difficult for them to turn around now and have a Pauline conversion on the tax-the-not-rich issue.

Lets blame one another rather than have a proper system!

So much more fun and it lets those who run the place loot it faster!

@karl deeter

Careful what you wish for. In my experience, just such blind calls for ‘accountability’ are what has led to the multiplication of costly and inefficient layers of bureaucracy in the public service. In health and in education there are now armies of very highly paid bureaucrats who see their sole purpose as making mostly dedicated professionals somehow ‘accountable’. They add virtually nothing to the ability of those services to deliver. But of course if you assume, based on the ideology promulgated in the Independent, that somehow these professionals must really deep down be layabouts, then the sting of the lash is too good for them, isn’t it?