Shares of Public Expenditure

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The lead editorial in today’s Sunday Times (not on the web) states

Many in Fine Gael believe it is almost impossible to judiciously — and fairly — cut €2.2 billion from spending if 70% of the total, in the shape of public-sector pay, is protected from further reduction.

Now I know that the Irish government is pretty hopeless at presenting its fiscal accounts but it’s really not too hard to find out the true figures on the shares of expenditure taken up by pay and other elements.

Go to page 49 of this document which we have to send to Brussels on a regular basis and which uses the perfectly sensible approach of reporting all of the government’s spending and revenue, rather than specific sub-components picked out according to some unintelligible criteria. The shares of public expenditure for major categories this year are as follows:

Pay and pensions = 25.5%
Social payments = 37.8%
Intermediate consumption = 11.4%
Interest payments = 8.4%
Capital formation = 6.4%
Other (including subsidies) = 10.5%

So not 70%. Closer to one-third of that figure. And, as I’ve dicussed before, when income taxes paid by public sector workers are factored in, the net cost is significantly less.

I have stated repeatedly that I think further cuts in public sector pay rates are required. However, it is hard to see how any reasonable debate on this issue can be had when so many of our media outlets hopelessly misrepresent the basic facts at hand.

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81 Responses to “Shares of Public Expenditure”

  1. christy Says:

    Looking at the expenditure side, it seems a bizarre decision to promise not to cut pay or social welfare.

    When you add in a promise not to raise income tax the situation gets even stranger.

    It looks like we have an example of two inconsistent approaches to dealing with the deficit, Lab v FG; and what they have done is combine the popular bits of both their approaches, while leaving the unpopular bits out.

  2. The Alchemist Says:

    Pay, pensions and social payments come close to 70%. Throw in a bit of subsidy and one could argue that the ‘pay bill’ in a broad sense is not to shy of 70%. I take your point that it is inaccurate to declare that % as public sector pay, but you can see how a case can be made that 70% is income in some form or other. Is this high, average or low by European standards? Comparisons would be interesting.

    Incidentally, was there a thread on the jobs initiative (re)announced by Minister Bruton?

  3. David O'Donnell Says:

    Yes

    But anyone watching Minister Richard Bruton on Vincent Browne show this week giggle_an_squiggle_and_anxiety twitch at mention of upper_echleon public sector pay or excessively pensions or a third tax band …. must wonder … comparative ratios on upper-echelon/nether_regions public admin with the scandinavians are almost double! In many respects, public sector pay reflects the class and capital distribution ….. totally scewed towards the top while the nether regions are roightly screwed ……. a modicum of balance in stressed out times would be welcome at the mo … and would assist in adding some legitimacy to the significant levels of economic and societal change requisite to promotion to the European Premier League ….

    http://www.irisheconomy.ie/index.php/2011/09/11/public-pay-and-the-sindo/#comment-168812

  4. Ernie Ball Says:

    Karl makes the mistake of thinking anyone cares in the slightest what the truth is when all they care about is finding someone to scapegoat and demonise. The Independent and Sunday Timed are happy to sell them papers by fanning the outrage. If it sours the public on raising the sacrosanct corporate tax rate or the rates on the likes of Gavin O’Reilly, so much the better. Nevertheless, there is some hope that the 99% (including all but a handful of those working in the PS) will cop on despite the failings of our captive media.

  5. christy Says:

    @Ernie

    Do you actually believe that it’s a mistake to think

    “anyone cares in the slightest what the truth is… all they care about is finding someone to scapegoat and demonise”

    seems a bit over the top, no?

  6. Colm Brazel Says:

    One of the great tragedies of our Celtic Twilight was the massive increase in the public sector pay bill often accompanied by depletion in services and neglect of infrastructure. Lots of Celtic Tiger financial stimulus was channelled into exploding mortgage and loan repayments. A badly managed economy led to many abuses. The residue of this is to be seen in the scandal of public sector pensions, massive expenses for TD’s and obscene pay rates for members of government, academia, quangos, legal profession…..

  7. Ernie Ball Says:

    @christy

    Think I’m exaggerating? See Colman Brazel’s post just below yours. It’s virtually a truth-free zone.

  8. Ernie Ball Says:

    Sorry, Colm Brazel’s (damn phone autocorrect).

  9. Eureka Says:

    Would be grateful for an answer on this if possible. If we cut the structural deficit to zero how much would public sector pay have to be cut (assuming same cut for welfare)?

  10. Michael Hennigan - Finfacts Says:

    It’s hardly news that politicians, journalists and economists regularly present wrong statistics as fact — fact checking is not very common.

    Personnel costs should include part of the procurement budget of about €15bn.

    A quango needs to have travel budgets, IT and office costs for staff.

    Pensions now account for 13.9% of the total Pay and Pension Pay bill, up from 8.8% in 2006.

    Rather than getting involved with defenders of the status quo, shouldn’t the focus be on how a bankrupt country, facing long-term high unemployment, and dependent on firms from another challenged economy for new employment, could operate its affairs more prudently?

  11. Karl Whelan Says:

    Classic Hennigan. Pay budgets should include non-pay. Pointing out facts is “getting involved with defenders of the status quo”.

    Of course, I’m used to it by now.

  12. Ernie Ball Says:

    You forgot the biggest whopper of them all, Karl: “we.”

    As Tonto said to the Loan Ranger: What do you mean “we,” white man?

  13. The Dork of Cork Says:

    We seem to get bogged down into seemingly endless Paddy debates about this little microcosm of activity or that little speck of humanity without seeing the bigger global trade picture and its wild dysfunction.
    I recommend people play with http://www.google.ie/publicdata
    go to World bank World development indicators & mess around with the import / export graphs.
    I can only see Singapore as a more extreme example of Import / export dependency with Vietnam curiously just below Europe’s most extreme neo- liberal experiment.
    But given that HSBC is essentially running the Vietnam operation it is no great surprise.
    Sure these countries have experienced a great increase in their living standards but they have given up any redundancy and protection from external trade shocks in the process.
    At least up to 1992 the bankers that run France tried to give the country a inherent redundancy – now not so much.
    This era of globalization has reached its peak – just like in 1914 , it is collapsing due to its own internal contradictions
    Our efforts should all be about re localizing what we can while we can.

    PS also look at fuel price per litre in Europe graphs given the indirect tax debate coming down the line in this country
    Greece has the highest price in Europe (+the Netherlands) at 1.67 Euro a litre but that did not prevent economic collapse as you must provide cheap alternatives that sustains commerce.
    Just having higher petrol prices and high public transport prices as in the UK is the wrong policey mix as it results in the under utilization of scarce resourses to achieve private profits on natural utilities.

  14. Frank Galton Says:

    One question: are there actual government talking points circulating with this number or is it just something picked up by the hacks in the D&N school of economics?

  15. The Dork of Cork Says:

    PS again – Greece moved from 81 cents a litre Jan 2009 to 1.67 in October of this year – thats more then a doubling of price !!! a true oil shock.
    Contrast this with Holland at 1.25 in Jan 2009 to 1.67 now – a more gradual transition – add in the fact that you can move around much easier in Holland given its public transport facilities & topography and you can see why Greece is in such a pickle.
    Many countries infrastructure and habitation have simply been designed with a different energy density in mind – also Greece’s energy credits through tourism has been cut to pieces given that northern Europeans are pulling in their energy horns.

  16. DOCM Says:

    @ All

    FYI

    http://www.independent.ie/opinion/analysis/another-case-of-robbing-private-sector-to-pay-public-2946850.html

    Notably the following;

    “They would even justify their outrageous bonuses and inflated salaries on the basis that it only costs 50 per cent after tax. We all pay tax based on what we earn, so unless they feel their treatment should be different to the rest of us, there is no merit in their argument”.

  17. Eureka Says:

    I’m confused about the pension issue.
    Private sector pensions are fairly easy to understand – you take out money and invest it in something and you can access it on your retirement.
    At the risk of sounding stupid – does the same happen in the public sector? If a public sector worker makes a contribution to his pension now, is it siphoned off and invested? Or is it used to pay the pension of a current retiree?
    What actually happens to the pension contribution of a public sector worker?

  18. Karl Whelan Says:

    @ DOCM

    “They would even justify their outrageous bonuses and inflated salaries on the basis that it only costs 50 per cent after tax. We all pay tax based on what we earn, so unless they feel their treatment should be different to the rest of us, there is no merit in their argument.”

    If someone makes the point that the net cost to the state of a public sector salary, if 50 percent is deducted in tax, is 50 percent of the gross salary, then that’s not an “argument”, that’s arithmetic. Right?

  19. hoganmahew Says:

    Given the current international situation, the difficulty the EFSF has in raising money and the likelihood that treaty changes will be difficult in Ireland, I’d say that coming up with ideas as to how the country can operate at all would be useful.

    There is going to be an “are you in or are you out” choice to be made. We’d want to have a better level of debate than the “how much are dem” manner in which choices have been made in the past.

    I think it is essential that the last few remaining active academic economists in the country give us some scenarios of possible outcomes in economic terms, otherwise we’re going to end up being presented with a choice between a wet dream (freedom from shackes rowing our own boat) and a nightmare (no cash in the ATMs, back to the 1950s).

  20. Eureka Says:

    @hoganmahew
    +1
    I’d really like if they answered this question.
    Assuming that we cannot raise any money on the bond markets – (which is going to happen) and that this country has to survive only on the taxes raised, how much can we afford to pay:
    1: The public sector
    2: The non-working sector and
    3: Pensions (if we cannot reduce them can we tax them)

  21. Karl Whelan Says:

    @ DOCM

    I’m having trouble believing that “James Fitzsimons is an independent financial adviser specialising in tax and financial planning”

    If he was, surely at some point he would have advised someone in the public sector.

    He writes

    “How is it possible, without saving anything for your retirement, to get a pension that exceeds what you earned when you were at work?”

    I’m guessing the “exceeds what you earned when you were at work” is a reference to people retiring on some fraction of final salary that exceeds an average lifetime salary.

    But the “without saving anything for your retirement”? Really?

    I just looked at my payslip.

    1. An item labelled “Contributory Pension” takes away 4.4 percent of my gross salary.

    2. An item labelled “Pension Related Deduction” takes away 9.1 percent of my gross salary.

    3. I will have an “integrated pension” so I won’t get the state pension separately. My PRSI contributions are intended to pay for this element of my pension. That’s another 3.8 percent of my gross salary.

    Taken together, that’s 17.3 percent of my salary. And yet I “don’t save anything for retirement.” Astonishing.

  22. Karl Whelan Says:

    @ Eureka

    “this country has to survive only on the taxes raised, how much can we afford to pay”

    If you have in mind the end of the euro, remember that one possible outcome is that we still run a deficit put it’s part financed by the Central Bank of Ireland buying new-punt government bonds.

  23. Joseph Ryan Says:

    @Eureka

    Public sector pensions are ‘Non Funded’. This means that when money is deducted from PS salaries or wages that money is not put into a ring fenced pension fund to be invested and subject to legislative rules etc.

    This gives rise to a big issue if the State goes bust. As the pensions come out of the same pot (i.e taxes collected during that year) then pensions are as vulnerable as pay. Pay and pensions are in theory as vulnerable as any other item of public expenditure including social welfare, interest payments on debt and indeed debt repayment itself. In practice however the organs of State look after themselves first and foremost. This is particularly true in non democratic States but is also true to a large extent in Western democracies.
    In other the people at the top will cut people outsiders first, then cut insiders from the bottom up.
    I should also note that some semi-states (eg ESB, Bord Gais..) have funded pension schemes similar to those in the Private sector where the money deducted from salaries is put into a ringfenced fund to earn money towards pensions. This money is sometimes topped up with an employer contribution (say 5%) in most semi states.

    On reflection, the ‘ringfence’ on pension funds has been breached by the new Govt levy on (presumably?) all funded pension schemes excluding of course those for the wealthy known as ARFs or Approved Retirement Funds.

  24. Eureka Says:

    @ Karl
    Thanks for that. I’d like to run to worst case scenario. No deficit at all and we stay in the Euro
    Assume no drop in tax revenue
    Is it possible to work this out?

  25. Eureka Says:

    @ Joseph Ryan
    That’s interesting. It’s a bit of a daft system. The person from whom the money is being deducted believes that they are paying for themselves. In essence they are paying for the retirees around them.
    So a public servant’s deductions are not going to his own pension but to the pension of his retired neighbour who will go and spend his money in a private sector restaurant and put private sector petrol in his private sector car and by some presents in the private sector toy shop for his kids (they’re not private sector). Are these deductions not another way in which the public sector is indirectly providing more stimulus to the private sector. They’re almost altruistic(!)(joking)
    In fairness though – the system is a bit daft

  26. Eureka Says:

    Sorry meant grand kids

  27. EWI Says:

    @ The Alchemist

    Pay, pensions and social payments come close to 70%. Throw in a bit of subsidy and one could argue that the ‘pay bill’ in a broad sense

    How the f**k do you expect not to be mocked mercilessly for claiming that social payments and pensions are part of the “public sector pay bill”? Some alchemy involved, clearly.

  28. DOCM Says:

    @ Karl Whelan

    Another more pertinent extract.

    “I have nothing against public-sector pensions. In fact why can’t we all have them? Once pensions were necessary to keep workers from sinking into poverty when they could no longer work. Public-service pensions started out like this. But as our fortunes changed and the public-sector pay bill rose to an unsustainable level, nobody questioned what pensions were costing. In 2012 public sector pensions could be close to the financial savings Michael Noonan is looking for in his Budget. We cannot ignore them, but we can change who pays for them”.

    I am frankly astonished at the collective myopia being displayed by the public sector in Ireland with regard to the issue of pay and pensions. This is a phenomenon, of course, not confined to Ireland which anyone who gets stuck in Heathrow tomorrow will, no doubt, appreciate. Put simply, the money paying your gross salary, and the contributions you are making, and the tax that you pay, are coming from the public purse.

    The UK is not broke. We are.

    According to a report that I read, David Begg is in favour of a Scandinavian solution to Ireland’s problems. If so, he should recommend their approach to pensions which is based on the principle of equality.
    This requires a radical re-think of the largely artificial distinctions between large areas of the public and private sectors with regard to pay and conditions. Indeed, I see no exit from Ireland’s problems if the issue is not addressed. Not alone is it not being addressed, there appears to be a lack of awareness of its very existence, oddly enough, also in the private sector.

  29. Eureka Says:

    http://www.zerohedge.com/news/efsf-cash-irish-bailout-running-out

    When this happens how do we pay our public servants? Screw is turning. Time is ticking. Let’s start talking pay cuts and real figures in a zero deficit situation.

  30. Tullmcadoo Says:

    Karl,
    I guess the relevant point is whether the 17% you pay towards your superannuation is enough to meet the cost of your pension from your normal retirement date. Is the scheme you are a member of in surplus?

    In any event, universities are different from the civil service and parts of the wider PS in that there is there is some sort of a fund there.

  31. The Alchemist Says:

    The public sector is the way it is because it suited successive governments to either neglect its oversight or else lavish money on it to shore up other areas of the domestic economy, or both.

    There is clearly a need for involuntary redundancies across the sector and the closure of many entities that duplicate responsibilities. Many of the most educated and informed within the public sector would be very quick to recommend this medicine to private sector corporations. And often they would be right.

    Bringing down the pay levels of everyone is just crass politicking. An analysis of what is the minimum number required to provide services with what level of efficiency should have been the starting point for Croke Park but common sense hardly ever wins out in Ireland.

  32. Joseph Ryan Says:

    @Karl Whelan

    I am, but possibly should not be, surprised by the portion of govt expenditure made up of pay and pensions : 25.5% as you outline above.
    And of course govt ministers and spokepersons should know better than the ’70%’ remarks often heard.
    But looked at from the point of view of an individual Ministers Dept over which he supposedly has direct responsibility, then the figures made not be too far off.
    What really surprises me however is why tax increases are poo-pooed to such an extent that they are not even discussed.
    In relation to your support for higher level PS pay cuts, the govt could start with one simple adjustment.
    Section 531AAD imposed a special 45% USC charge on ELG bankers bonuses. That section should be extended to all Semi-States and PS for salaries in excess of €200,000.
    That would firmly capture all wider PS earners. If they leave so be it.

  33. Overseas commentator Says:

    @Karl Whelan
    If Ireland leaves the Eurozone ,there will be a massive devaluation of the punt ,everything imported(and that is a lot in an open small country) will see its price sky-rocket (see Iceland). Do you think advisable to feed a massive inflation by monetizing the deficit?
    I assume that Ireland will default on its Euro denominated debt when it leaves the Eurozone ,because that is the only realistic option.
    I do not know if this can be avoided ,but in case it happens,the pay level of public servants will take care of itself,just let their nominal salaries lag by a few days the price index.

  34. Karl Whelan Says:

    @ Tull

    “I guess the relevant point is whether the 17% you pay towards your superannuation is enough to meet the cost of your pension from your normal retirement date.”

    There are lots of potentially relevant points. The one I was making was that Mr. Fitzsimons has no clue if he thinks that public servants make no contributions towards the cost of public sector pensions.

    As for whether my contributions will meet the cost of my pensions, as has been noted above, there is no actual pension fund and I wouldn’t be at all surprised if whatever I end up getting is a long way short of what I’m currently being promised.

  35. Joseph Ryan Says:

    @Eureka

    re So a public servant’s deductions are not going to his own pension but to the pension of his retired neighbour who will…

    His retired PS neighbour.

    I was intending to avoid the PS versus private sector issue but having spent some of the weekend attempting to help somebody through the trauma of a debt laden business about to go bust, with no recourse whatsoever for that person, or their family, to social welfare or a pension of any kind, my suggestion is that you reflect on how well off you believe the vast majority of private sector business owners or employees are.

    In fact I believe that not only should the Croke Park agreement be scrapped but it should never have agreed in the first place. The biggest beneficiaries were the people ‘negotiating’ the deal on behalf of the government.
    I have a lot of sympathy for lower paid PS and private sector workers. I have none at all for the higher eschelons who are grossly overpaid and grossly over pensioned but despite all objective evidence before them believe like Mary Harney that they ‘have earned it’.

  36. Tullmcadoo Says:

    Karl,
    I thought there was a UCD/NUI scheme. I stand corrected.

    As to your last point. Anybody under 50 is going to have to reconcile themselves to a haircut. It is one state obligation where holders will be burned. Hopefully your obligation is not subordinated .

  37. Ernie Ball Says:

    Karl wrote: The one I was making was that Mr. Fitzsimons has no clue if he thinks that public servants make no contributions towards the cost of public sector pensions.

    I think Harry Frankfurt’s On Bullshit might be a propos here. It’s not that Mr Fitzsimons has or does not have a clue about what the truth might be and one certainly cannot accuse him of lying, which would imply some knowledge of and concern for what the truth is (in order to avoid saying it). Rather, he doesn’t give a shit what the truth of the matter is. He’s going to claim what he wants to claim, truth be damned.

    This is typical of what is put out in the Irish media, not to mention on this very blog.

  38. Joseph Ryan Says:

    @Hogan

    Does a hard default, which is certainly there on the horizon as a possibility,
    necessarily mean no cash in the ATMs/ back to the 1950s.
    How did Iceland manage to avoid that scenario?

    It seems to me such a dismal scenario could be averted doing an Iceland on the banks and by using penal levels of taxation as an interim stop gap measure. The alternative, to impoverish large sections, possibly a majority, of society while people in work continued to live very well indeed would be very unjust and more to the point would lead to social chaos very quickly.

  39. Tonicforthetroops Says:

    Karl
    Is this him? http://www.jfitzsimons.com/aboutus/ourteam.php.
    Here http://economic-incentives.blogspot.com/2011/11/this-is-old-ground-but-somehow-we-keep.html is Seamus Coffey smacking him hard. But, then with the exception of Colm McCarthy, gene Kerrigan and usually shane Ross, the writing in the sindo is usually equal parts bile, Inaccuracy, prejudice, and navel gazing

  40. Tonicforthetroops Says:

    Joseph Ryan
    The govt have ruled that out. So….

  41. EWI Says:

    @ Tonicforthertroops

    But, then with the exception of Colm McCarthy, gene Kerrigan and usually shane Ross, the writing in the sindo is usually equal parts bile, Inaccuracy, prejudice, and navel gazing

    Some mishtake, shurely? The Sindo was touting Mr. McCarthy as an “independent expert” on their front page a couple of weeks back. I presumed this meant that it was a different Colm McCarthy who is a fellow-traveller and regular columnist there.

  42. Colm Brazel Says:

    It’s a gas watching the ‘pass around the austerity bucket’, pensions, public sector pay, cuts in services, involuntary redundancies, ….

    Austerity will do damage to our budgetary affairs. The figures are there to let us know growth will fall beneath the magic 3% over the coming years, so even our ‘bailout’ negotiated by Honahan, Cardiff et all, will increase our debt weight, rather than float boats. Department of Finance projections of ¢600,000+ on vat 2% increase are now acknowledged to be a mistaken overestimate due to the smothering of demand this will cause in the retail sector. Add the austerity cutbacks into this equation and come to the conclusion there must be grave incompetence to also assume cutbacks in jobs and pay and services, will not lead to falls in retail activity leading to more job losses (more expensive unemployment to be paid for by the state) and loss of income due to falling tax returns.

    Add in the numbers added to toxic mortgages and negative equity due to austerity and quickly figure out Krugman’s views on austerity as counter productive, are correct.

    However, austerity can work. But it cannot work while there’s an elephant in the room that’s been ignored. This is the average ¢4 bn/yr repayments on our debt that needs to be paid out annually over the next 20yrs to square up what we owe on the banking sector? We need to apply austerity to the banking sector.

    But our leadership is hapless and toxic, unable to function because its controlled by our toxic financial sector. Its ‘beggar-my-neighbour’ policies are toothless and self-serving to the point of humiliation and embarrassment.

    We’ve no Grimsson or Bo Lundren only a toothless Quissling puppet, zombie government who’ll shortly enter into an alliance with the protected higher sectors in our economy, to hammer the poor and safeguard the rich?

    How boring and tediously gombeen is that?

  43. Philip II Says:

    EWI
    whether one agrees with Com McCarthy or not he, along with Kerrigan, is perhaps the only ray of logical, witty, well argued light in the wasteland that is the Sunday Independent. Ross, less so, and less as time goes on. And, Kerrigan and McCarthy are pretty much imho opposite ends of the spectrum. The rest of the Sindo is by and large a rag. Occasional glimmers of talent surface but are swamped by the mediocrity. As for fact checking…

  44. Eureka Says:

    @ JosephRyan
    I agree with you. I was just trying to understand it.
    And if anything it’s becoming clearer that this is all about the people on the bottom (be those in private or public sector) bailing out those on the top. Thats the debate that really needs to take place.
    But first:
    In a zero deficit environment what can we afford in public sector pay, pensions and social welfare? At least 3 areas to be analysed

  45. Philip II Says:

    Eureka
    Lets see. Based on Karls figures we could not close the deficit by cutting PS pay to Zero (which people like Michael Hennigan might cheer on general grounds anyhow) ; nor could we close the deficit by cutting all ( yes, including your granny’s OAP) pensions by 2/3.
    But, its pleasant to fantasize.

  46. Colm Brazel Says:

    correction above, ¢670,000 ml was the ‘alleged’ saving by Noonan on 2% VAT increase, later retracted by officials who acknowledged it did not take into account the damper effect of this

  47. Joseph Ryan Says:

    @Eureka

    re In a zero deficit environment what can we afford in public sector pay, pensions and social welfare? At least 3 areas to be analysed.

    I have no idea. There are people much better positioned than me to make a stab at it.

    To my mind it would require state of emergency legislation. Some ideas.
    No reductions in PS below below 40,000 with graduated percentage reductions above that to a maximum of 150,000.
    Removal of all tax breaks. Period. Pension. Section 23. Section 50. No run out periods.
    Imposition of graduated supertax rates starting at about 60,000 etc.
    Special tax for all Pension and Pay dippers. Those that are full pension but still have nice little earners for the State or semi State companies.
    Capital controls forcing back deposits that have moved abroad and forcing back approx 80 billion in pension assets that have moved abroad.

    The ‘bigger’ issues would be what currency the State and bank debt would be paid in. We would have to face down the EU / ECB powers this time. Otherwise paying those old debt in Euros or if the Euro broke up paying them in a currency mix skewed up by the revalued Dmark would be a complete disaster.
    Suffice to say that it would be a real shock and you would try pretty hard to avoid being first into the water.

  48. Eureka Says:

    If we take in 36 and spend 48 then we have to reduce spending by 25%. That means a 25% hit in untaxed spending and a 50% hit in taxed spending.
    As a start how about 25% cut in social welfare and a 25% tax on pensions then graduated cuts in public sector pay.
    Sounds bad doesn’t it!

  49. Eureka Says:

    @ Joseph Ryan
    Crossed posts there but weird how our solutions are similar. I’d typed mine before I saw yours!
    Only thing id dare to say is that in a zero deficit environment you don’t have to worry as much about paying back the bond markets (I’ll be criticised for that one I know!) but honestly – you don’t!

  50. stephen Says:

    They should means test all welfare payments such as unemployment benefits and children’s allowance. This approach would save the exchequer money and it would ensure that the most vulnerable are not affected.

  51. Brian Flanagan Says:

    My view as per recent letter in the Irish Times:

    Given that the Minister for Finance has claimed on numerous occasions that all the low hanging fruit has been picked, why doesn’t he start plucking some of the ripe, plump fruit off the highest branches? He could also give the tree a good shake and make substantial saving by cutting off dead branches and pruning back at all levels.

    For example, he could introduce a third tax band for salaries above €100,000, apply a salary limit of €150,000 across the entire public sector and limit pensions in the sector to half that. Such measures would be much fairer than increasing VAT, introducing new stealth taxes and cutting key services and capital expenditure. Given that the country is effectively bankrupt, force majeure should take precedence over legitimate expectations or entitlements and it makes no sense to increase borrowings and pay additional interest simply to allow those at the top of the tree to over-ripen.

  52. judgejohndeedes Says:

    @ All
    Has anyone worked out a way of putting a monetary value on the fact that permanent public sector staff cannot be made redundant ?

    As a former PS employee, this was the most daunting facet of leaving the public sector – yet I’ve never seen any attempted quantification of this benefit.

    Of course, as a classic hurler-on-the-ditch, I dont even have a suggestion as to how this could be done!

  53. EWI Says:

    Has anyone worked out a way of putting a monetary value on the fact that permanent public sector staff cannot be made redundant ?

    The ESRI threw it in as another lash against the public sector in that paper they did coincidentally-before-a-paycut.

  54. Tonicforthetroops Says:

    Brian Flanagan
    That would run right against the loreal brigade at the top of the civil service free, the same wonder kids who refused to take the pay cut in 09. It would be nice to see the head of the dept of public expenditure come out and take that position but I wouldn’t hold my breath.

  55. judgejohndeedes Says:

    @ewi

    thanks for that. its an interesting aspect of the public sector employment contract.

    if anyone has a link to this ESRI report send, please post. Ill have a look when i get to the laptop.

    It will be interesting to see if the ESRI managed to put some kind of figures on it. In reality, this employment guarantee must increase in value in a recession ?? So on that basis, permie public sector staff could actually be becoming better off as the unemployment numbers rise.But the burning question is…..does it negate the pay cuts taken to date??

    Quantitative vs qualitative. dont envy ESRI on this one!!

  56. Karl Whelan Says:

    Actually, it could be argued I underestimated the pension contributions. I missed the 1.5% in

    “Spouse and & Children /Civil Partnership Contribution” which is effectively a pension-scheme type payment.

    That raises the contributions to 18.6%.

  57. Niall Dunne Says:

    I don’t work in the public sector myself, but one change I’d like to see made – and it’s a change which I think would be useful to the country at large – is putting an end to defined-benefit pensions. Or, at the very least, public sector workers should be allowed to opt-out of the various levies used to garnish their salary and should be free to sort out their own pensions. It’s got to be one of the biggest barriers to anyone considering leaving the public sector, I know it would make me think twice or three times before moving on. I mention this mainly because I’ve seen a lot of turnover in my 15 or so working years since college, and I’ve hired (and fired) people who’d already worked in 5 or 6 different companies across a wide spectrum, and this broad range of experience has brought many benefits that can’t be foreseen or advertised for. My feeling is we’d all be better served (public sector workers included) if this particular “barrier to exit” wasn’t in place.

  58. Overseas commentator Says:

    @Niall Dunne
    Many countries (France,Germany,the “social security” part of the retirement system in the US) have a defined benefit pension system in the private sector. Many people think that retirement should not depend on the fluctuations of the financial markets.A French worker keeps his rights when he takes a new job and the unemployment agency pays for him when he is unemployed so that his retirement rights keep increasing when he is unemployed (within limits).
    The main reason why people are so attached to their public sector jobs is that they will never be unemployed.

  59. Eureka Says:

    Has anybody worked out the figures yet?
    We’ll need to have our homework done soon methinks

  60. hoganmahew Says:

    @Joseph Ryan
    “Does a hard default, which is certainly there on the horizon as a possibility,
    necessarily mean no cash in the ATMs/ back to the 1950s.”
    No, not at all, or not necessarily (it depends on the choices that are made) – what I am saying is that the public will be presented with only the two choices of nirvana or disaster (nirvana if we leave, disaster if we leave). There won’t be arguments provided that will allow for reasoned analysis, there will only be spin from two illiterate camps.

    “How did Iceland manage to avoid that scenario?”
    Well, they didn’t really. At least, not yet. Without capital controls and with a debt-to-GDP of 123% (I think), the ISK is inches away from toilet paper. Good for local obligations, useless for anything that is not produced in Iceland or not backed by foreign exchange.

    It’s a good thing they are quite insular, as they’re going to enjoy each other’s company quite a lot. Whether the same would be true for Ireland under capital controls is a different question:
    http://www.voxeu.org/index.php?q=node/7275
    “The actual controls are much closer to the 1950s style of capital controls, with virtually all currency transactions requiring permission from the Central Bank.

    Icelandic firms seeking to invest abroad need rarely-granted permission from the Central Bank. Icelandic citizens need a government authorisation for foreign travel, since a Central Bank licence is needed to get tightly rationed foreign currency for travel. Any individual seeking to emigrate from Iceland is at least partially locked in by the capital controls by virtue of not being able to transfer his or her assets abroad, a restriction on emigration not commonly seen in democracies.”
    Note – the VoxEU piece is arguing from a position that the peripheral crisis is stabilised; how things change in two weeks. I think, were it possible, money would be taking its losses and fleeing Iceland by whatever means possible. Fish, maybe.

  61. Examiner Says:

    @Karl

    There is also your employers’ PRSI at 10.75%. Regarding benefits that flow from this, as a tenured academic your risk of involuntary unemployment is close to zero. This puts your pension-related contributions as a proportion of your total cost of employment at about 27%.

  62. Mickey Hickey Says:

    The last gov’t I worked for deducted 7.5% on the pay statement. The policy was matching contributions so the gov’t put 15% in the pension fund. The “Pension Fund was a notional concept in that a ledger was kept which tracked inflow, outflow and a return equeal to the prevailing rate on 10 year gov’t bonds. Occassionaly the gov’t removed “surpluses” to the general revenue side of the master ledger. Basically the penion paid 2% per year worked based on the average of the last 5 years up to a maximum of 35 years or 70%. The “magic number” was 85 which meant one could retire at sixty without penalty after having worked 25 or more years or 61 with 24 or more years worked.

    Pay was negotiated on the basis of the average in the 27 largest cities for comparable jobs. In negotiations everything was on the table including the gov’ts 7.5% contribution, vacation, sick leave, maternity leave, compassionate leave, paid coffee breaks, health plan, dental plan, vision plan. The important thing was a Minister could get up in Parliament and defend the gov’ts position without waffling, avoidance or puffery. One of the things I remember from negotiations was sick leave was broken down by gender and 5 year age increments for the workforce as a whole.

    At one time Sweden did a lot of work on determining what contribution was required to fund a pension plan, the number arrived at was between 15% and 17%. The plan I was in was loosely modeled around the work done by the Swedes.

  63. hoganmahew Says:

    @Examiner
    Employer’s PRSI is related to jobseekers benefit, sickness and maternity benefit and all the other ‘benefits’. Employee PRSI is the pension bit.

  64. hoganmahew Says:

    @Eureka
    “Has anybody worked out the figures yet?
    We’ll need to have our homework done soon methinks”
    Sod that, let’s have another “us and them” bunfight.

    Roll on the euro exit. I’m all right Jack, I get paid from a country that’ll still have a currency.

    *despair*

  65. Niall Dunne Says:

    @ Overseas commentator

    “The main reason why people are so attached to their public sector jobs is that they will never be unemployed.”

    A sweeping statement and I’m sure it’s true for some people, but I doubt it’s true for all. My hope would be that a level playing field, starting with pensions, would allow for more free movement between sectors.

    We have to start somewhere, why not here?

  66. Colm Brazel Says:

    What’s left in the National Pension Reserve Fund? Huge tactical mistake there as well to allow ¢15 bn to be taken from this to recapitalise the banks. Wasn’t there an ESRI economist arguing that all the NPRF should be spend on the banks to reduce our annual debt obligations. Were’nt the Frankfurt boys trying to screw us by insisting we use it on the banks as well. Maybe they were smarter than our boys and realised we might use it instead in a hard default scenario….were we sleeping on watch again!

  67. Michael Hennigan - Finfacts Says:

    Leaving aside the negativity of 2 UCD academics, what is striking about the Irish setup is that it’s official policy to keep employer social security costs low, with the result that there is no occupational pension coverage in many Irish-owned firms.

    In contrast, the public sector earnings-linked scheme is a very expensive one.

    In 2006, the representative of Minister for Finance Brian Cowen on the pensions board objected to mandatory pensions on cost grounds. The former politician retired on a full public pension pension at 51.

    The Bord Snip report provides several examples of unusual benefits; some judges can get fell pensions after 19 years; gardai can pick their 3 best earnings years to base their pensions on and retire at 50 and so on.

    The CSO says self-employed pension coverage was 36% in 2009 and is likely to be less than 30% now.

    For the private sector median earner, the Irish worker has the worst deal among developed countries.  Net pension relative to net average earnings is 36% in Ireland, 39% in the UK, 41% in New Zealand, 56% in Australia and 77% in Austria.

    Real returns on Irish managed funds have been negative over the past decade and returns are likely to remain low for many years.

    So even those in the private sector who have an occupational pension, may get little from it.

    Pensions and retirement age are an issue in many countries.
    For example in France, a male can enter the workforce at 24, retire in mid-fifties and spend 24 years in retirement (OECD) – - 48 years of dependency!

    Despite the pensions levy, the earnings link makes the actuarial costs of pensions for higher earners very costly.

    The C&G (a public employee) estimated that an additional year’s pension, net of employee contributions, cost 62% of salary.

    FÁS and the universities ran up pension deficits amounting to €1bn, partly because additional years in pension entitlements were liberally provided.
    Governments general keep total pension costs off balance sheet.

    At 31 December 2008, the C&AG estimated public pension liabilities at €108bn; the accrual rose to €116bn at the end of 2009.

    If that addition plus the cash payout had to be added to the public accounts in a year – - €10.5bn – - it would highlight the cost.

    The truth is often bitter and it’s common for those who can’t handle it to use the tar brush. In this case, that I’m anti the public sector. Maybe I’m anti-private sector as well becuase of criticism of low pensions coverage?

  68. Michael Hennigan - Finfacts Says:

    The line on judges pensions shold read: 10 years.

  69. Michael Hennigan - Finfacts Says:

    The Irish Times today has an article on judges’ pensions:

    http://www.irishtimes.com/newspaper/ireland/2011/1128/1224308221034.html?via=rel

    Former Supreme Court judge, Mr Justice Anthony Hederman, gets a pension worth €60,611 in respect of his service as attorney general from 1977 to 1981 in addition to his judge’s pension of €92,195. His total pension package is therefore €152,806.

    Hederman did work on the Law Commission post his retirement in 1993. however, his pensionable years as a state employee were 16: 1977-1993.

    A pension of €60,611 for 4 years working for the state seems a lot, or maybe it isn’t?

  70. David O'Donnell Says:

    Precious!

  71. Eamonn Moran Says:

    @ Eureka

    What you seem to be looking for was largely contained in Morgan Kelly’s last article in the Irish times.

    He was advocating a very fast balancing of the books re what happened in Iceland.

    There was a huge shock to the system up there and people like Karl had cautioned about how dramatic something like this would be for the Irish economy. However they are now back on the road to recovery and their unemployment rate is around 7-8% I believe

  72. Eamonn Moran Says:

    @ David O Donnell
    “totally scewed towards the top while the nether regions are roightly screwed ……. a modicum of balance in stressed out times would be welcome at the mo … ”

    I agree but this will continue.
    The proof was in recent comments from Eamonn Gilmore where he defended strongly the pay of higher civil servants when questioned in the Dail. His speech was a carbon copy of a similar defense given by Simon Coveny on the week in politics the night before.

    It seems that after many years of being a highly paid Public Sector employee and spending a lot of time with highly paid Civil servants has led Eamonn Gilmore to forget he supposed to be the leader of the Labour party and he is supposed to be a little more in favour reducing the increasing gap between lower and higher paid civil servants.
    Or have the labour party decided being even slightly left of centre is out of fashion

  73. John Sheehan Says:

    @Karl (and others): The NUI Colleges and TCD did have pension funds until about 2 years ago. My understanding is that some of them were in serious trouble, but that UCD’s was healthy (There is virtually no publihsed information on this, which is a disgrace).

    The Dept of Finance and HEA solution was to merge the individual funds into one combined Unicersity Pension Fund, i.e raiding the comparatively solvent UCD funds to bail out the others. They hadn’t heard of Moral Hazard, then!

    Anyhow, about 2 years ago all the University funds were transferred to the NTMA and we are now effectively state pensioners. We were made state pensioners at just about the point when it was clear that the state was insolvent. This was done with no consulatation whatsoever. I don’t know what legal rights people had to funds which they had paid into a fund, or which their employers paid on their behalf.

    To me the whole thing reeks of the worst vices of Irish public administration: secrecy, incompetence and arbitrariness.

  74. Overseas commentator Says:

    @Michael Hennigan
    Concerning France:
    Except for exceptions like the military,the rail road workers,the firemen etc….(less than 10% of the population) you need to work 41 years to retire at 61 with full pension. Sarkozy has increased those ceiling twice and they are now indexed with life expectancy.
    The pensions of the civil service is a lot more generous than the private sector and the exceptions mentioned above are not really justified.The retirement system like the medical insurance system are not completely self-sustaining and remain a major cause of the French state deficit,but the situation is not close to what you described.
    The socialist candidate (Hollande) has promised to move back the retirement age to 60 ,but I doubt he will do that if he is elected.
    PS:I retired at 65 with 60% of my last salary.I am allowed to keep working free-lance.

  75. Eureka Says:

    @ Eamonn
    It is quite likely we won’t have a choice. It would be nice to see what this would look like.

  76. Garry Says:

    @Colm Brazel… On the NTMA, pensions and banks.. One suggestion I made at the time was the state should insist the bank employees and director pension funds go in before the public pension funds….

    It really was so obvious, a child could see it…. Want me to bail you out? After you lads….

    The Frankfurt boys were doing their job…. its a shame our boys weren’t…

  77. Eamonn Moran Says:

    @ Eureka

    Stephen Kinsella also did an article on this if memory serves.
    I think he looked at where one could come up with 15 billion of cuts if you had to in a short time period.

  78. Kevin Walsh Says:

    I have little to add to Karl’s post, but on an unrelated point that was brought up in this thread, unemployment benefit is means tested (though unemployment assistance isn’t).

  79. Joseph Ryan Says:

    @Kevin Walsh

    You got your wires crossed. It is Assistance that is means tested. Benefit is not means tested.
    The names have now been changed from ‘Unemployment’ to ‘Job-Seekers’.

  80. hoganmahew Says:

    @Joseph Ryan
    Indeed and it is paid for out of employers PRSI, hence the self-employed are not entitled to it, even should they wish to pay employer’s PRSI…

  81. Sarah Carey Says:

    How about this:

    Everyone in the country, private and public sector, President to street sweeper is given a basic state pension at the same rate.

    After that, sort yourselves out. So no more DB public sector pensions paid for out of current expenditure at all. Public sector workers arrange pensions for themselves just like private sectors workers do.

    It would end the obsession with pensions in wage negotiations and I think more importantly,
    1. would oblige the higher paid public servants, including politicians, to think a bit harder about what kind of country they are organising if they are obliged to consider how they themselves might live on a basic pension. A very personal kind of accountability. No swanning off and leaving a mess behind consequence free…

    2. Would see rapid reform of the private pension industry, which in my view, is still selling over priced, over complicated, awful products. If policy makers and legislators themselves were depending on these products they might be more enthusiastic about reforming them.

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