Irish budget set to impose pay cuts

The Irish government looks set to impose a large and unpopular public sector pay cut in Wednesday’s crucial annual budget aimed at restoring credibility with debt markets.

Brian Cowen’s centre right coalition is aiming for savings of €4bn ($6bn) to contain a runaway deficit, but risks unleashing a trade union backlash which threatens Ireland’s much admired industrial relations model.

Jack O’Connor, leader of the Services Industrial Professional and Technical Union, the country’s largest trade union, on Monday warned there would be “a campaign of resistance against pay cuts”.

The Irish Congress of Trade Unions, the main umbrella body, was meeting on Monday to consider its next steps, after talks with the government on an alternative deficit cutting plan collapsed on Friday.

Even with the savings outlined, Ireland is set to have to borrow 12 per cent of national output next year or four times the limits allowed by the European Union under its rules for joining the euro.

After weeks of negotiations, talks broke down last week over a new centralised pay deal. The Fianna Fail-led government, under pressure from backbenchers, rejected trade union proposals that instead of a pay cut, the 300,000 public employees would agree to take 12 days unpaid leave.

Economists point out this would not have addressed the structural deficit – that part of the deficit left behind once growth resumes, which is estimated to be about 8 per cent of gross domestic product.

The public sector pay and pensions bill has increased by almost 30 per cent in the past four years on the back of tax revenues from an unsustainable property bubble and debt-fuelled consumer boom.

Tax receipts have collapsed leaving the government having to find upwards of €13bn of savings between now and 2014 to bring the deficit back to the European Union limit of 3 per cent of GDP.

Mr Cowen indicated at the weekend public sector pay is set to fall by 4-5 per cent, with higher-paid civil servants such as ministers and judges likely to incur the biggest pay reductions. Wednesday’s budget is also set to include unpopular cuts in social welfare payments and childcare benefit.

The fall in consumer prices – down 6.6 per cent in the year to October – should make cuts easier to bear.

But union leaders pointed out that public employees were already hit by an effective 6.9 per cent cut in take-home pay with the imposition of a public service pension levy in February. They want taxes increased

But ministers believe there is little headroom in the short term for higher taxes, with Ireland having the fourth-highest marginal tax rate in the European Union – only Austria, Belgium and the Netherlands are higher.

The breakdown in relations between government and trade unions – after 22 years of setting pay norms centrally under a social partnership model – means it will be much more difficult for the government to secure the badly needed reforms in the public sector, which every economist realises is needed for improved services in the long term.

The proposal on paid leave was put forward by unions as a one year bridging mechanism that would help the government meet its cash target in 2010 ahead of major changes in work practices in subsequent years.

But trade union leaders said the collapse of talks – after coming so close to agreement – makes strikes more likely.

SIPTU’s Mr O’Connor said: “If this all just about beating up working people, and beating up the people who depend on public services while the people at the top of society are completely insulated, then its game over as far as any agreement with this government is concerned.”

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