Benchmarking III: Revenge of the Productivity Myth.

It needs dismantling I agree but it won’t be done. There’s also this in the Sindo –

http://www.independent.ie/business/irish/mystery-over-crucial-missing-lenihan-notes-3237040.html

and this time last year we were remarking on the thousands stuck in a queue for the jobs fair with no chance of getting in.

Nothing has changed in the past year.

Nothing.

Nothing has changed as PR Guy says above. You have to wonder about the competence of our Masters in the Troika. Surely they can see through this rubbish even if our political classes are beholden to various vested interests. When will they call a halt. And then there is the story over on the excellent Namawinelake on the costs associated with the NTMA foray into the bonds markets where we have apparently built up about 11billion in cash to pay off existing sovereign bonds. The cost of this is huge with the cost of funds about 5.25% and the current return about 0.09%. The annualised cost appears to be in excess of 500m. Costly strategy?

It lseems to me that there are two plausibe explanations with regard to the allowances farce (i) the government – especially the windbag element in it – does not know what it is doing or (ii) it decided to beat a tactical retreat in preparation for the real unavoidable battle viz. re-visiting the CPA.

I am inclined to lend most credence to the second possibility because, as many will have noticed, even the unions have begun to run away from the impossible task of continuing to justify it in its present form.

The TUPs are coming home to roost, curfew being budget day!

So johnny you’d cut 20%? How would you then deal with the massive wave of strikes? And the court cases as people sued for breach of contract? Would you advocate this for all state services or just the workers?

There’s the 4th UP — the legacy bondholders. As with CPA, incumbents were protected at the expense of the newcomers.

I think the tactic is to ” test the market” with the new recruits and then use this to set the overall salary.
The ploy is interesting because new recruits are unlikely to join the old guard on the pickets. It will work like this:
Old guard face a drop of 25% and new recruits an increase of 5% and divide and conquer like that. The CPS is being set up to fail. It was a bad agreement – little more than a grubby bribe and there should be no CPA2

@ Joseph Ryan

Events will demonstrate whether what I suggest is correct or not. There are, in fact, a few ministers and ministers of state, from both parties, across the generation divide, with enough cop-on to know what needs to be done. What I have described as a global national package deal will have to be worked out before curfew on 5 December.

I agree that there is no time for another bench-marking exercise and the approach is, in any case, utterly discredited.

It may even be that what I have described as the nomenklatura is developing a conscience, prompted, no doubt, by the dire employment prospects of their children and grandchildren.

As to the bank deal, I suggest a bit of poetry.

O my Dark Rosaleen,
Do no sigh, do not weep!
The priests are on the ocean green,
They march along the Deep.
There’s wine . . . from the royal Pope
Upon the ocean green;
And Spanish ale shall give you hope,
My Dark Rosaleen!
My own Rosaleen!
Shall glad your heart, shall give you hope,
Shall give you health, and help, and hope,
My Dark Rosaleen.

We all know how that ended!

Our household debt levels are some of the highest in the world, so large drops in public sector pay might well lead to a spate of defaults.

It might, but then the law will be changed by these troubled insiders so that it won’t. And that will benefit all of the struggling home-owners across the country.

So this point is actually an argument in favour of large drops. A big argument.

@ All

The full flavour of an organisation taken in by its own propaganda. Note the nice departmental logo! And the “mission statement” on the home page. The only mission this department should have is to auto-destruct and allow the return of the control of the public purse to a single finance ministry.

http://per.gov.ie/2012/09/18/review-of-public-service-allowances-and-premium-payments/

Our Oireacteas is sovereign.

Not really.

The Taoiseach and most of his Ministers repeatedly declare, quite openly, that the country has lost its sovereignty. Moreover, they also quite openly admit that they have no control or authority over the nations finances or future. Indeed, Ministers have now reached the point where they will simply fail to make decisions or meet objectives, and will indeed reverse decisions once made in order to please private groups or meet PR expectations.

Most damningly of all, the actual “cabinet” running the country is no longer a meeting of ministers as specified by the constitution. Instead the the “de facto” is now a meeting of the Economic Advisory Council, which consists of only 4 ministers and a selection of appointed cabal members with no constitutional basis whatsoever. At least Cowen held “Incorporeals”.

The Oireachtas meanwhile, is a creature of the Government, which is increasingly itself a creature of foreign powers.

Now I’m not some old fenian/republican/socalist revolutionary going on over a jar. But nevertheless I do think that the State has effectively broken down and has lost solvency, sovereignty, and now legitimacy. It appears to me that the ruling ascendancy of the land are more or less satisfied—to do nothing—with this state of affairs. I don’t know what the population is going to do about it.

@Johnny Foreigner

“If the scales for new entrants are so reprehensible why aren’t the PS out on strike right now?”

This is a very good point and gets to the heart of the problem (and I sincerely hope no new joiners on the reduced entry salaries are even thinking of joining the union that won’t look after their interests) – the problem being that incumbents/the old guard have circled the wagons and are only interested in protecting their own patch and damn everyone else.

But we all know what happened to the people on those wagon trains in the end, once the injuns got hold of them by the hair.

Since benchmarking and CPA are both products of the Department of Finance’s role as the personnel manager for the government, what we need is an extensive review of how the department performed all its functions in the boom years. Such a review should be conducted an eminent non-Irish expert, perhaps say a Canadian with IMF background. By taking a comprehensive perspective on what DoF was doing in its various capacities over the last 10-11 years, we would learn more where benchmarking came from, because it would impossible to miss it within the scope of such a review. Surely?

This is an excellent and characteristically forthright contribution from Colm. It makes a refreshing change for this topic to be raised by a mod on this blog.

Stephen K notes:

“There are pros and cons to Colm’s argument, and second order effects to any change in public sector pay, just to pick two: given that the ESRI estimated in 2010 that for every €1 billion in public sector cuts, consumer spending falls by approximately €750 million. ”

Can we nail this early doors in the debate, and then just leave it for the PS lobby to use to soak up time in interviews with half-briefed journalists? The point itself would be appropriate to use if Ireland were like the UK, US, Japan, Sweden or Norway etc – the common theme being a choice available of whether or not to sell some more government bonds to raise money to sustain the budget deficit, even if you have to get your central bank to buy them on way or another.

Can we all agree here and now that Ireland is not in that position because of choices made earlier?

The estimate “that for every €1 billion in public sector cuts, consumer spending falls by approximately €750 million.” may or may not be vaguely correct like all estimates and forecasts, but in Ireland’s case the refusal to make €1 billion in public sector pay reductions is accompanied by an obligation to dump that burden on other people in Ireland.

It is unarguable that for example, the decision by the HSE to supply cheaper, leakier, more irritating nappies for carers of disabled people who have urinary incontinence, highlighted by David O’Donnell the other day, will have a knock-on cost to the economy – more exhausted, more depressed carers who are less able to hold down jobs or able or inclined to do some consumer spending (along with their families), more hospital admissions, perhaps a few suicides even.

The ESRI however will be very slow to attempt to estimate the effect both because it is not easy to model, and because it is one of thousands of such ‘secondary effects’ of such diversity that the task of identifying let alone quantifying them is daunting.

For every €1 billion saving opted out of in today’s Ireland, there is either;
a) a compensatory tax rise, or
b) a compensating cut-back in quantity or quality of service provision.

Can we all agree that:
a) the compensatory tax rises / new taxes will also reduce consumer spending and reduce citizens’ capacity to service household debts, and
b) an additional reduction in quality and/or quantity of public services also has Knock-on effects which reduce economic activity

I think this should be reasonably uncontentious. Can we agree on it?

@Robert Browne, JF

Its an interesting question as to why wait. The TUP which was to adhere to the CPA is being used as that reason. However adhering to the CPA also obliges the government to adhere to 1.28 of CPA which is just as much a part of it as any other element.

The existence of 1.28 has now started to be referred to in the mainstream media – but not yet the actual wording. That omission prevents ordinary voters reading those few words and realising what they quite obviously mean.

Just for the record Clause 1.28 of the agreement says: “the implementation of the agreement is subject to NO CURRENTLY UNFORESEEN budgetary deterioration.”

[I note that there have been attempts from government politicians to pretend that the wording is rather different to this – that is very revealing and it is astonishing that no journalist appears willing to look up the actual wording and challenge them on this]

The words “no currently unforeseen” refers to the outlook as at March 2010.

Unless you are prepared to argue with a straight face, that the budgetary outlook as foreseen in March 2010 (half a year before the IMF were called in) did not ” deteriorate” then you have to accept that the government has no actual obligation all the other elements of the Agreement.

For reference, see below.

http://www.impact.ie/iopen24/faqs-t-547.html

With specific acknowledgement of the effects of paragraph 1.28 as follows.

” Q Is there a ‘get out’ clause that would let the Government introduce more pay cuts even if we co-operate with change?

A No. Clause 1.28 of the agreement says: “the implementation of the agreement is subject to NO CURRENTLY UNFORESEEN budgetary deterioration.” There were similar clauses in all previous national agreements. The Croke Park clause reflects the reality that an unforeseen shock to the economy – like the collapse of the banks around the world in 2008 – would create a new economic and budgetary situation.

The clarifications IMPACT got from the Labour Relations Commission confirm that the implementation of paragraph 1.28 “will be applied in a bona fide manner by the Government side” and that “it is not envisaged that, on the basis of any currently known facts, that the clause would be utilised.” The clarifications also confirm that, if such a situation were to arise “the parties would meet at central level (i.e. Government/ICTU) to discuss the circumstances that had arisen and the implications for the Draft Agreement prior to any decision being taken that would adversely affect the pay provisions of this Agreement.”

@Grumpy / Others

“Unless you are prepared to argue with a straight face, that the budgetary outlook as foreseen in March 2010 (half a year before the IMF were called in) did not ” deteriorate” then you have to accept that the government has no actual obligation..”

“The clarifications IMPACT got from the Labour Relations Commission confirm that the implementation of paragraph 1.28 “will be applied in a bona fide manner by the Government side” and that “it is not envisaged that, on the basis of any currently known facts, that the clause would be utilised.”

Do I take it therefore that the ‘Labour Relations Commission’ believe ‘with a straight face’ that the economic situation has not deteriorated since March 2010?

Another few question, if I may.
Does the ‘Labour Relations Commission’ speak for the government on this issue or is the above just the Commission’s own interpretation?
Secondly, if the labour Relation Commission’ does not speak for the government on this issue, is the Commission seeking to influence a key aspect of government policy and what is its statutory authority to do so?

The argument about the impact that cuts in public spending could have on consumer spending is self-serving as is the one trotted out about a payoff for industrial peace.

So Anglo Irish Bank (IBRC) should remain one of Ireland’s biggest indigenous firms on that basis with 1,000 employed when 100-150 at most should be able to handle the ‘business’ of a shuttered bank? It’s out of business.

Read the Croke Park implementation body’s claimed ‘savings’ from bubble levels while the Minister for the Status Quo gets away with stressing pay savings while ignoring rising pension costs.

It’s not only the PS are part of the continued misgovernance but sheltered professionals are continuing to make a killing from the wreckage of the collapse.

GPs who are also drawing from the public trough, have jacked up fees since the crash for private clients.

Up to now, the unemployed and tens of thousands of self-employed (many not by choice in the modern economy) are struggling at subsistence level and those who want to maintain the status quo, are in effect telling them to eat cake.

You are weak; you’re not organised and you have not the muscle of the IFA to put the frighteners on that specie known as the ‘rural TD.’ So be happy with your lot.

It will soon 6 years since the onset of the US subprime crisis; many are clueless as to where significant numbers of new jobs will come from.

Force majeure should have been declared on public spending across the board. Drip, drip drip as hope is drained from those in the private sector who should be given the opportunity to see some hope and set up startups.

Most new net jobs in a modern economy are created by firms up to 5 years old. Surviving firms more than offset the high level of failures.

Off topic…

A guy told me earlier of a Dub friend who so hated Kerry that he bet on Kerry to win when they played Dublin, to soften the pain of a Dublin loss.

Setanta broadcast a nice video of Thai kids paying tribute to Donegal and Mayo:

http://youtu.be/cG2n34DmPv4

@ Michael Burke

It would be useful if you could list the red herrings that you have in mind.

@ Grumpy @ Johnny Foreigner @All

April 2010 Croke Park was agreed, by July August we were locked out of bond markets, by November 20th or there abouts Hohohan was requesting a slot on Morning Ireland to steal a march on Brian Lenihan to tell the people that he “fully expected a deal for tens of billions to be done”. If one 1:28 was to have any legitimate meaning, if the meaning of english words are to have any meaning then 1:28 should have been invoked after we were locked out of bond markets and before the bailout.

The simple fact is, that this wording was only inserted to disarm anyone arguing against the agreement. That was it’s sole purpose. The people who guaranteed their own salaries facing into a crisis of existential proportions, government and unions were never, ever going to invoke this get out of jail clause.

Just look at the farcical review of the special allowances where only ONE of 1,100 was done away with? I believe Brendan Howlin is the minister for the prevention of reform. Laughably, he went on RTE news at 1 o’clock, two weeks ago, to try and dupe the nation that this agreement was working and that it was “an enviable piece of architecture for reform”…. “much coveted by other European countries”. I’am sure it is. An agreement where the laziest and most underworked public servants can set their own agenda, cannot be fired, cannot have their salaries cut, cannot have their increments cut, who can only be coaxed into retirement with generous pensions and lump sums is “an enviable piece of architecture” while the most valuable and overworked can jump ship.

The unions are leading their members over a cliff and to an inevitable show down with those in the private sector and the result will not be pretty. Why are unions registered as “Friendly Societies”? Why are union dues collected for them by government? Why are union subscriptions tax deductible? How were unions able to benchmark their own salaries to the public sector salaries, when they don’t work in the public sector? Why is there “sweet heart” deals done with unions to shepherd people into their fold so they can be milked for union subscriptions?

The Croke Park deal was described by Cormac Lucey recently as “economic apartheid” it is not, it is apartheid plain and simple it a disgraceful piece of work which renders everyone else in the country second class citizens, it removes the legitimacy of the government to impose and collect new taxes and it should not be put up with for a day longer. It is also responsible for the government dragging its feet on personal insolvency, debt forgiveness or mortgage write down’s and a whole host of necessary policy initiatives but at the end of the day the government and unions will live to regret their stroke politics and pretend social partnership agreements which betray a nation. I heard Kieran Allen on the VB show last week giving us his utterly silly version of smoked salmon socialism, he fully supports CP deal but thinks that the sewage man and the fish monger should also be getting the same salary as a lecturer in UCD. How absurd. The next generation of social scientists to emerge from UCD should be something to behold.

Like Brian Woods above, I am a bit bemused by:
“… … for every €1 billion in public sector cuts, consumer spending falls by approximately €750 million.”

We are also told that every €1 billion in public sector cuts yields only 400some million net to the exchequer. Surely it can’t work both ways?

By the way, if public servants are able to spend 75% of everything they earn, they are earning too much…

I’ve read a lot about those poor quality nappies in recent days. As a PS worker I can confirm the poor quality of goods bought by Procurement based on public tendering. I bring all my own pens to work as the ones bought by Procurement are useless. In my little part of the PS we regularly throw out entire boxes of pens as there isn’t one working one in the box.

Just one thing though: just because you need an incontinence nappy doesn’t mean you are poor. I can personally vouch for the fact – having had a wealthy and elderly close relative return from abroad to live in Ireland in the last 5 years – that many such benefits are not means tested. My wealthy relative received many free goods and services (home help, carer, meals-on-wheels, Council-provided assisted shower (cost = €8k), HSE-provided special recliner armchair (€2.5k), an offer of a trip to Lourdes (!), taxis to and from health appointments and Cardiac Rehabilitation classes, etc., all the while being well able to pay for these. In discussions with work colleagues, friends, acquaintances, and others I have been surprised by the level of sentimentality towards older people. One person argued that even Michael O’Leary when he gets old should be entitled to free stuff.

In respect of the general social and political environment in Ireland at the moment, I think the most accurate comment was from one well-known columnist who recently spoke of it resembling Weimar Germany.

That reducing Public Pay would have a negative effect on domestic demand shouldn’t be the key factor in making the decision.

Jesus, you could make a domestic demand argument for every single cut and tax increase since 2008 but it doesn’t make them any less necessary.

At the Fianna Fáil Ard-Fheis in 1970, Seán Flanagan (1922 – 1993), minister for lands, who was captain of the Mayo All-Ireland football winning teams in 1950 and 1951, did a rare thing in Irish politics. He called publicly for his department to be abolished.

It was indeed rare for an insider to put the public interest above his own and this month, The Sunday Independent reported:

The president of University College Cork, Dr Michael Murphy, who is paid €232,000 a year, has described how the heads of Irish universities “are as challenged at paying their bills as anyone else”.

He continued: “Many people won’t understand this because of the scale difference. But the stress on people is the same.“

This man’s background is in medicine.

The politicians are unfit for purpose and so many others at the trough are either in denial or see self-interest in keeping the trap shut.

James Downey wrote in the Irish Independent on Saturday:

If the Government had come into office promising to slash and burn and started slashing and burning straight away, people would have accepted it on two conditions.

The first is called, not quite accurately, fairness. People are not so foolish as to expect perfect fairness, merely the perception of a government doing its best.

Secondly, a reason to believe in the possibility of recovery. In the last 18 months the population has felt it has seen that possibility receding instead of coming closer.

Irish long-term unemployment – – at least a year or more — is at 60% of the total. Along with Slovakia, this is among the highest rates of the 34 mainly developed member countries of the OECD.

The think-tank estimates that Ireland would need to create 307,000 jobs to return to boom time levels of employment..

“What crisis?”

The lack of urgency is striking. Slow-motion remains the default mode.

Last year the OECD said the Irish school system is characterised by limited accountability mechanisms. It said the inspection of the work of individual teachers falls almost exclusively on primary teachers on probation, and that limited data on comparative school performance is made available to the public.

The OECD said the authorities should set up mechanisms to systematically evaluate teachers’ and schools’ performance, and make the results public when adjusted for social-economic background. It added evaluation results should have implications for career progression, and inform any needed corrective action in relevant areas – notably extra teacher training at primary and secondary level, especially in maths.

How dare they run down our fine systems!

“The sensible action for the government formed after GE2011 would have been to immediately invoke Clause 1.28 and set about renegotiation of key elements of the CPA, in particular the unrealistic salaries and benefits of senior grades and public service pensions. ”

The sensible thing would have been a Blitzkrieg but the vested interests are hunkered down and have very good snipers. Some of them are in Government. It’s trench warfare, Veronica. This is in the DNA of the insiders.
It won’t be over by Christmas either.

@Veronica

I have often thought about the missed opportunity Enda had when he stood up in the Dail back in March 2011. Instead of the usual nonsense about a new politicals blah blah what I believe he should have said and it would have immediately triggered a real debate is as follows:

“I have recently met with Ms Angela Merkel and disagree entirely with her stance with regards to the full repayment of bond holders (of all varieties) insofar as it pertains to the covered Irish banks. The original bank Guarantee issued in Sept 2008 was to alleviate a liquidity issue, it was never designed to compensate the financiers of insolvent institutions. All the Irish banks covered were seen shortly after the crisis erupted to have been grossly insolvent, without exception. To this end I hereby state that no further bond holders will be paid out of the public purse and the primossary notes agreed for the most insolvent institution of them all namely Anglo Irish Bank will not be paid. For the sake of clarity I repeat, this newly elected Govt will not under any circumstances continue the policy of compensating bond holders of any variety who invested and took risks placing there money into now grossly insolvent banks. The original Govt guarantee was never intended to bail out investors in insolvent banking institutions. The Irish Govt is not in a position to carry the weight of so called sophistciated investors losses any further.” Ends.

If the Govt press office repeated that basic message every day, and I truly mean every day since this Govt enetered office the markets would have initially had a bit of a spasm but over time they would have adjusted to the new reality and that is compensating private investors for poor decision making is not the job of Govt. In time the Troika would have agreed if some proper arguments regarding the merits of the above were placed before it. Opportunity lost.

YOB yes they are, which makes them wages in effect. The only ones that are not are expenses in lieu of vouched expenses.
Theres a vast amount of energy being expended on this, and rightly so….meanwhile we lie back and think of Ela as we move towards the second half of the ProNote year. Next Mach 31 is nearly as close as last was, and we will happily pay over 3.1b (or x2 allowances, or X1 budget adjustment) to salve the inflationary fears of the ECB.
Distraction politics.

@brian lucey

Thanks. So its not in fact an allowance its a wage as you describe so the calls for having them business reviewed (God help us) is rather pointless with the CPA dagger overhang still in place.Right? Or am I missing something?

Johnny
Ok. I thought the entire media cycle that wasnt taken up with Dr Reilly was about allowances and the CPA. Silly me.
YoB : to a great extent yes. This is a bottle of smoke, expensive smoke but… They fall into three categories : allowances that are actually wages for a task (being a minister or in my case the 300e a year i get as an “exam marker”, and indeed i would include many of the teachers allowances here also on the assumption that having PG qualifications was in essence a mandatory entry requirement) , allowances that were insane buyoffs and should be stopped forwith (too many to list but the franking allowance i like as a case in point, or the allowance in lieu of overtime) , and allowances that reflect some degree of additional expense/inconvenience, such as the garda shoe allowance. Most all of these could and should be replaceed by vouched expenses (which might cost more btw). What we see is either a) gross political cowardice , b) softening up to say well we cant cut allowances so we wil cut pay, c) fumbling or d) all of the above.

@ Brian Lucey

The ‘media cycle’ and people exchanging views on the internet does not count as expending a vast amount of energy. Actually doing something about this would count as expending some energy – e.g. actually cutting the allowances in an intelligent fashion. We have a whole government department devoted to dealing with things like this – do you think they are working particularly hard at reforming the public sector?

20% is 2.75b, so it’s closer to 1 than 2b. It’s a one off deal, the cut….and having done it, then what will the bitterati complain about?

http://www.edwalsh.ie/beal-na-mblath-address/

Excerpt below

“Government will have to reform and prune a flabby, overpaid public sector, and face down public sector unions in the process.

The latter has to happen. Croke Park was yet one more incredible deal that the public sector unions managed to extract from a weak and disoriented former government. The new one has yet to show the courage and determination necessary to stop the public sector unions walking away, yet once more, brazenly and unmolested from the ‘ATM machines’ without honouring undertakings.

For the most part individual public sector workers want to get on
with their jobs and make a contribution to national recovery, but they are
working within an antiquated and dysfunctional public sector. There has been no comprehensive reform of thepublic administration system since it was inherited from Britain. Its effectiveness has been eroded over the years by a succession of ministerial decisions that found conceding to unreasonable demands preferable to opposing them. The public sector is rife for the kind of radical reform introduced with such excellent results in New Zealand and Hong Kong.

Hidden away in Volume 2 of Colm McCarthy’s 2009 report[3]
are a startling litany of strange payments and concessions to public servants
that have been conceded over the years. As a result the terms and remuneration
of Irish public servants far exceeds those of their counterparts in Germany.

Those who are struggling to make ends meet and do not enjoy the remuneration, perks and job security of the Irish public sector look to government to bring about fundamental reform. Failing this, many would be happy to see the Troika insiston an exercise to benchmark and align Irish public sector remuneration and
concessions with EU norms.

There is growing concern amongst the general public as reports emerge
of extraordinary public sector work practices and concessions in education, health and most other sectors. The fact that the Labour Relations Commission should see fit to be an instrument of negotiation with FAS workers, who wished to retain some 70 additional days of holidays in the years before retirement, highlights the cocoon of unreality in which the public sector abides.

Michael Colllins, were he around today, would put the fear of God
into those who abuse their secure positions and fail to put Ireland first at
this time of great crisis.”

The main problem I have with Colm’s suggestion is that if BM3 was to happen it would prescribe that the public sector should follow the example of the private sector and increase wage inequality.

Any benchmarking exersize would lower the pay of middle and lower public servants and leave the pay of many higher earners untouched.

This would be done on the basis that the top people are worth it and must be remunerated accordingly. The vast majority of evidence would suggest the opposite. The causal correlation between increasing Ceo wages and company performance does not exist. It was as a result increased power concentration. Increasing massively the salary of Ceo’s and others nearer the top of the food chain has been continued through the crash.
This is especially the case in the MNC and financial sectors.
Colm basicly suggests copying this model that has been shown to be fundamentally flawed because it fits with his ideological leanings.

I agree that Money needs to be saved in the public sector but i have found unusual bed fellows in the form of Eoghan Harris and Sinn Fein.
The way to do it is increasing income taxes with a third 48% rate and reducing pension benifits for those near the tops of the PS.
In short the answer lies in increasing wage equality. Colm indirectly suggests the opposite.

Speaking of allowances, do tribunal and other barristers ‘refresher’ fees, paid by the State, come under the auspices of allowances. Are they still being paid?
Was there a business case made to retain them?
What are the plans to cut them?
Or has the ‘barristers’ party gone soft on barristers?

@ Veronica,

“( and hence the pay bill but without factoring the cost of increased pensions to retired personnel)”

Don’t forget to mention the cost of rehiring these people as external contractors / consultants.

Ireland produces little wealth itself.

Ireland produces a handsome crop of wealth every year. Most of it is wasted on people who produced none of it.

@ Sportshog,

The nub of the argument is that if reform is solely focussed on pay and numbers reduction, rather than how to get the system as a whole to work more effectively, efficiently and productively, all you end up with is a weakened system still performing very poorly.

As for a BM3 exercise, if it would take at least one year for an entire division of a Department working with the Labour Court, which suspended all other work for the duration, how long would a BM3 take? Politically, I guess the advantage might be that it ‘kicks the Croke Park can down the road’ (please forgive use of that awful cliche) until after the next general election.

@ OMF

I’m excluding the likes of Intel, Microsoft and Google from Ireland’s wealth.

Ireland is not among Microsoft’s 3 ‘strategic’ overseas R&D centres. It’s main Irish unit had a payroll cost of €82m on revenues of over €13bn in 2010/2011.

Google Ireland’s payroll costs in 2010 were €152m on revenues of over €10bn.

Even CRH could be excluded. About 90% of its shares are held overseas and about 1% of its head count is located in Ireland.

“Therefore, as Eddie Hobbs said this morning and I agree, this will not be solved without massive confrontation between the private sector and public sector ”

The private sector can chip in by reducing the cost of living. Food etc are pricey enough in Ireland.

@Robert Browne

I agree. I say we put them all in camps. Nay, camps are too good for them after what they’ve done to us….

@ seafóid

Don’t know if you are familiar with the Food Emporium in Liffey Street, where there are a variety of ethnic food stalls I remember seeing a “stall” advertised rent at a mere 75,000 Euro per annum and that is before rates, insurance, electricity and staff costs. Ask how come this ethnic fare is multiples of the price it can be had for abroad and you will be told it has little to do with the cost of food it has everything to do with astronomical rents and rates bills which conveniently ignore current realities. Also, cost of parking in the city. Americano and a muffin a lot cheaper than the cost of parking.

@ Ernie Ball

I will remind you that there are other messengers whom you can shoot why don’t you have a go at Dr. Edward Walsh who has actually run a univesity and who has said on numerous occasions “I am paid too much, we are all paid too much”, just as Morgan Kelly said he was 100% overpaid in one of his opinion pieces. You see it is very easy to “admit” that you are overpaid in the PS because you can also be 100% sure that you will be ostracised and studiously ignored by one’s august colleagues or alternatively they will deliver a treatise on why this is not so. The socialist, Kieran Allen, was on VB last week and naturally supports the Croke Park agreement. In fact, he thinks all proletariats should be brought up to Lecturer scales.

@Michael Hennigan

Your contributions are invariably informative and intelligent. But equally, they are almost always gloomy. You frequently lament the lack of a ‘jobs engine’ in Ireland. But surely many European countries fall into the same category. What is the jobs engine in the UK? Financial services can’t provide jobs for everyone there. Ireland has demographic advantages compared to most European countries, has productive land and seas and a good climate. It also has a good education system (notwithstanding the recent slippages), and its English-speaking workforce is still an asset. Our infrastructure is considerably better than a decade or two ago, and we have a subsantial supply of houses for our population. We also have a fairly mobile workforce.

Yes, reform is badly needed across a wide spectrum, but there is still hope for he future.

The bemusement that €1bn in cuts to pay might lead to anything less €1bn saved for the Exchequer is itself bemusing. Nonetheless it does not seem to provide any modicum of caution about expressing trenchant opinions.

If €1bn is paid to PS employees then they will pay a variety of direct taxes on these. According to the NIE 2011, based on the average of wage income for the whole economy the Echequer will lose about €300mn if pay is cut by €1bn. It will lose another €300mn+ or so on indirect taxes such as VAT and excise duties incl VRT. (By the way, the high propensity to consume is a function of low pay as the poor are obliged to spend the bulf of thir incomes. It is the rich who can afford to save).

These are only the direct and indirect effects of the pay cut. There are induced effects also as, at a time of rising unemployment, lower incomes almost invariably lead to lower spending, causing private sector jobs losses, lower business receipts (and taxes thereon), and so on.

Of course, if none of this were true then the real cuts to pay (including pay freezes and ‘levies’) to date would have led to a direct improvement in government finances since ‘austerity’ measures began in 2008. But General Government Borrowing was €20.2bn in 2011, compared to €13.1bn in 2008 (Table 21 (a)).

For all the vitriol, and the bluster, the evidence is that the cuts, including PS pay cuts have not reduced the deficit.

Oh, and David Begg just wrote his obituary as head of ICTU. I’m sure he’s arranged to keep the various directorships.

@ Ninap: “We also have a fairly mobile workforce.” Eh!

Ninap, mobility is great. Its the jobs that are the problemo – like there are an insufficient number of new ones available. So what does our ‘mobile workforce’ do? Process in circles? Musical chairs? Like our legislators discussing the Croke Park deal?

And you can forget about political and structural reforms. Not going to happen.

@ Colm O’Leary: Its not a write-down that is needed Colm, its a full, unconditional write-off. I would have thought this was obvious given the size of the compounding debt overhead and the declining level of incomes to carry that overhead.

Not to worry, our great pseudo-economists are inventing new formulae and models to ‘shrink’ the overhead (view it backwards through a telescope!) and enhance the size of our incomes (get a large magnifying glass!). “We’re saved!”. “Eh! No!”. “But lets play pretend”.

@BeeCeeTee

That’s a nice expression of precisely the ideological straitjacket I’m talking about. Or have you done a study correlating increases in the corporate taxation rate with profits being moved elsewhere to discover what the optimum rate would be? Or do you just assume, like everyone else, that 12.5% is the magic number?

@ Michael Burke,

“the Echequer will lose about €300mn if pay is cut by €1bn”

That is one way of looking at it…. however there is another perspective..

If the state passes on 300 Million it will save 1 Billion in expenditure.

With a lot of the money already used up from the Troika, we are still spending 13 to 14 billion more per year than we are taking in and the magic growth fairy has not yet appeared.

It’s a bit like November 1944 where German army Generals are commenting “not to worry, we will have better submarines next year”

The day of reckoning is not yet here, but it is fast approaching.

@Robert Browne

Surely that punishment is not nearly severe enough. I say we stomp them, then we tattoo them, then we hang them, then we kill them!

We are under two burdens Gov’t debt and private debt. Up to now the whole focus of corrective mechanisms is austerity combined with loans to banks cycled through national governments and guaranteed by them. This pushes down the rate of return on government bonds throughout the EZ but markedly so for the core governments. So relief for governments and banks is assured.

Private debt both business and consumer is a serious problem. You might rightly say not half as serious as bankrupt sovereigns. Since lending to the private sector is extremely low there is little benefit to be had from low interest rates. Inflation of 5% or more for over five years is
the only solution for the public at large.

We will not arrive at inflation nirvana in the presence of Germany. We cannot go it alone as we have amply demonstrated in the past. That leaves only a realigned EZ led by France with Germany and a couple of other like minded countries outside in the cold.

The Irish Gov’t is not in a position to do anything useful on its own.

Robert B
That would work…mind you the unfounded ps pension is 100b, while the unfounded SIF is what 300b? So I presume you’ll be happy to see the prsi pensioners also hit? Or is it just one set of unfunded pensioners? Just asking…

@ Anewdawn

No both we must start living in the real world!

@ ColmO’L: Well, thank you. Your the first to rise to my challenge. Are you an econ?

Steadystate sounds a bit iffy but you can fill in the gaps for me as we go along. Our energy supply (global) is anything but steadystate. And energy is what keeps our nostrils above the water level. Now, there is this matter of Entropy (the pollutant that arises from energy use). Entropy produces a very unsteady state. Entropy is what ensures that ALL economic Models-in-Use will fail – even my current Sustainability. Just will take a tad longer.

Debt IS money!!! This is the problemito. The damn thing grows exponentially whereas the capacity to carry a debt load can only grow artihmetically. So if you want to keep debt in check, you have to grow something that matches it, like money. Er, eh! Didn’t I say debt was money. Yeah! Ok, we have a problem here. And we genuinely do. Its debt itself. Or rather money itself if you want to be really nitpicky.

Granted in the short term (like 3 – 5 years) modest loans with non-compounding interest can be payed down. But with compounding interest loans you have shave your consumption in mathematical parellel or you eventually become insolvent. Like the Irish state today.

Forget the ‘prudence’ bit. Its nice in theory but the financial institutions don’t do prudence in practice. Our economic situation is so fraught that only a debt Jubilee will actually work. And a Jubilee is a very bad thing indeed. Its just a mite less bad than the long torture we are enduring. With either we just end up with a seriously Regressed economy and the same subsistence place, ‘cept in the case of a Jubille we get to shoot our torturers first! That’s a lot better!

And, thanks again. Wish more folk would try to get their heads around our unsustainable and failing economic Model-in-Use. And money!

@ seafóid
“One lost decade” indeed, that is their choice but the country will unravel during that lost decade and Ireland will be a very unsavory place to live in.

Mickey explain to me again how the poverty striken, unemployed and debtors with little or no incomes gain from inflation with little or no growth.

@docm

“Mr Begg said a discussion was needed between the trade unions and public sector management with a view to reforming the structure to incorporate certain allowances into the pay scale.

Mr Howlin has responded by saying that this was an attractive idea and that he had already instructed ministers to begin the restructuring process.

He said work was already underway in the Department of Justice and Education on this matter.

However Mr Howlin said it was not possible to give a timeframe for when public sector pay reform could be achieved, describing it as a “complicated challenge”.”

It rather reads as:

“There is a popular uprising against a portion of public sector pay. This sentiment is dangerous and we may have to make a few token gestures to the angry plebs with the burning torches and pitch-forks. We have carelessly failed to circle the wagons around the entirety of the payroll bill. We must correct this to the greatest extent possible, and this can be our “complex and time consuming reform process” too. 😉 “

Their biggest asset of ICTU, one Brendan Howlin, minister for keeping things the way they are, needed to be rescued from the quagmire he had walked himself into. So, enter stage left, along comes David with some of his own double speak “surrogate, needs to be looked at, discussed with a view to converting them from allowances to basic salary, over a period of time. Say 50 years!

@ MH: “A rising lake lifts all boats as the saying goes.”

Fine, as long as the silly buggers remember to stopper the bung holes!

“Austerity is preferred by Gov’ts until the worm turns and demands relief through inflation.”

This reminds me of one of those Far Side cartoons. A pair of bird legs are protruding from a wormhole.

“The early worm catches the bird!” I wish!

http://www.irishtimes.com/newspaper/opinion/2012/0925/1224324359752.html

“Resistance to change and delaying tactics are evident across many issues, with changes to sick pay, leave and so on all having to run the full gamut of the industrial relations machinery of the State. After six years of the agreement, the implementation body forecast of a 24 per cent reduction in the exchequer pay bill base seems to be due to the following: pay cuts 3 per cent (initially 10 per cent but reducing annually as increments are paid); staff reductions due to natural causes 12 per cent; and Croke Park agreement changes a miserly 9 per cent.”

@ seafóid

Sit down; you are rocking the boat!

@ BWS and Colm O’Leary

There is a growing realisation that developed economies are in a hole and that the experience of Japan over the past twenty years is likely to be replicated cf. Charlie Fell who returns to this theme in today’s IT.

http://www.irishtimes.com/newspaper/finance/2012/0925/1224324358889.html

The problem, it seems to me, as one of the vast majority that have no academic grounding in economics, is that turning around the Titanic is not really resolved by starting from the viewpoint that it should be on a different course entirely. It first has to avoid the iceberg.

@ DOCM: Thanks for the good laugh!

“It first has to avoid the iceberg.”

No! No! No! “Lets assume there are no icebergs!!!!”

Apologies, but this is what the Great Milton would have intoned. And his sychophantic followers would have provided him with a deckchair on A Deck. The better to observe the vessel as it slowly foundered!

You need precious little grounding in economics. In fact you are probably better fitted (intellectually) to situate things in reality. You just need to be someone who can do basic sums and has a reasonable appreciation of the really bad outcomes associated with exponential functions (in finite systems).

Could someone show me how to insert those Smilie things. Thanks.

@ Michael Burke

“According to the NIE 2011, based on the average of wage income for the whole economy the Echequer will lose about €300mn if pay is cut by €1bn. It will lose another €300mn+ or so on indirect taxes such as VAT and excise duties incl VRT.”

The Average industrial is about €35,000. 75% of PS workers earn above the average industrial wage. So assuming average PS is the same is average economy is an misleading. Also the vast majority of proposals is to cut pay of the higher earners more than lower earners. If you assume higher earners then the exchequer loses a lot less than 300 million.
Also in relation to Vat the same issue applies.
If the majority of the 1 billion is taken from higher paid civil servants (the type of people who save a lot more than the average) then the effect of that would be a lot less than the 300 million on indirect taxes. As as been pointed out before it is the lower paid who spend the greatest proportion of their income on high vat rated goods so obviously any figures based on an average are misleading.

@seafoid

Per the TSB it was €313,998 on average at the peak. In Dublin c€420k outside Dublin c€267k.

So on average €313,998/€35,000 = 8.97x

Ooops. Dublin I think we have a problem….elephant room in etc

YOB
The average FTE in the PS is on over 50k per year with the average PS pensioner on 22k per annum. Not everybody who bought at peak was on a single income average wage.

George,
logic does not enter in to it. Cutting PS salaries to the median might be good for competitiveness as per Simpleton. It might even be desirable on the basis of equity as they earn more and have better pensions. However we must not do it as it will further deflate the economy. Better to go raise taxes on every body else or cut services and transfers further. That will not have the same macro-economic impact will it.

In fact the lesson we learned today in macro class is that a euro spent on public sector wages has a higher multiplier than a euro spent on any other activity in the domestic economy. All together now, repeat.

@ Eamonn Moran

This is a misunderstanding. I was talking about the wage income and and the total tax take from wages across the whole economy. Myilustraton was based on the average for both of those.

If it is being argued that, on average, PS workers earn more than the average wage across the whole economy, then of course as income taxes are levied progressively PS workers will actually pay more in taxation. So cutting their pay levels will reduce the taxes by an even greater amount.

@Tull

Indeed you maybe correct but that is not what was asked. In the words of my college lecturers RTFQ !!

@George

You say

“Is it actually public workers that leveraged their salaries and took on debts? Or is it non public workers that needed to borrow to maintain their standard of living..”

Our survey says (from the ever excellent NAMAwinelake)

http://namawinelake.wordpress.com/2012/08/22/surprise-revelation-the-section-of-irish-society-that-partied-hardest-during-the-boom-40-years-and-older-teachers/

To borrow a quote from the link

“An Taoiseach Enda Kenny might be a little confused about whether or not we did in fact all party during the boom – variously proclaiming that “people went mad” borrowing during the boom but also that “we are not responsible” for the ensuring crisis – but a new report published by the Central Bank of Ireland shows that those over 40 years of age and employed in the education sector obtained the highest average-value equity release loans during the boom period 2005-2007, an average of €76,099 in 2005. In other words, it was mature teachers who partied hardiest and who went on spending sprees using money borrowed on the never-never…”

Oh dear.

On the basis of the enclosed it would seem any cut to public sector salaries/wages/allowances will simply tank the housing market further and ensure that the arrears data gets considerably worse from here and its all happening when tracker rates (estimated at 60% of all outstanding mortgages)are at record LOWS.

Folks there is no way out of this dilemma. Debt write offs are coming to a town near you.. and soon.

Stephen Kinsella says in an article in the Indo that the objective is to cut the pay bill and Minister Howlin always stresses the pay bill – – to boost teh ‘savings’ total.

However the annual cash pensions bill will soon amount to more than 20% of the pay bill and has more than doubled in recent years.

http://www.independent.ie/opinion/analysis/stephen-kinsella-whole-economy-will-feel-pinch-of-public-sector-cuts-3240315.html

So presumably, the imbalance in pension benefits should also be taken into account?

Pensions don’t appear to matter when one has one of the best in the world — linked to earnings and unfunded.

@ Michael Hennigan
“That is both delusional and damaging as it sustains a failed policy.

A Google or Microsoft could never develop in Ireland because of the small market. A startup with potential would be snapped up by an outside firm.”

I disagree with the idea that you are always too gloomy in your assessments but surely the problem above could be overcome. I know it would take political will and courage but it could be done.

Here is how.
The Government should ensure a clause in contracts where they give grants to start ups that they will be given first refusal if the company is being sold. They could then give a payoff to the owners and rehire them as directors. That way we could actually keep Irish success stories Irish instead of them becoming subsidiaries of MNC’s and hedgefunds who buy them up.
I know there would be powerful interests pushing the other way but isn’t this how Isreal managed to do it?