The Government took the somewhat unusual step yesterday of revealing details of its as-yet rejected pay offer to public servants – in effect, appealing to rank and file civil servants over the head of their unions to be reasonable, and take what’s on the table.
If you’re not au fait with the details, then they’re all set out by Senan Moloney and Anne-Marie Walsh in yesterday’s Irish Independent: For the lowest paid public and civil servants, there would be an effective 12% increase in pre-tax pay. For most people, it amounts to an 8.5% increase over the next two years. This is, it should be said, substantially ahead of expected average pay increases in the private sector.
The Unions have responded with something approaching scorn, arguing that the pay increases amount to about a fiver a week after tax in real terms for those on low incomes, and a tenner a week for those on middle incomes. Not enough, in other words, to make a real difference.
The case being made by the Unions is relatively clear and easy enough for most people to understand: Inflation (the decrease in the buying power of a euro) has eaten away at incomes passively over the last few years, and a pay increase that simply restored public servants to the standard of living they had before inflation started really biting would be something more like, they say, 19%. This, the Unions say, would effectively only get public servants back to where they were a few years ago, when inflation is taken into account. In that respect, they say, they cannot possibly accept an 8.5% increase that would leave their members – in real terms – worse off than they were in 2019 or 2020.
The problem is that the Government cannot possibly offer a pay increase of anything like 19%, for both fiscal and economic reasons.
The first point to make is that a pay increase of that magnitude would cost the state somewhere between an extra five and seven billion euros every year by the time all of the increases were enacted, depending on whether you count public sector pensions as part of the total, and further depending on the public sector not getting any larger.
To put that in context, it’s roughly what the state spends on housing every year, or the equivalent of funding an entire extra Government Department in next year’s budget. While the state has money to spare, a pay increase on that scale would dramatically limit the ability of politicians to do just about anything else in the budget coming later this year, which is of course the last one before a general election.
And then there’s the economic impact: pumping all that extra cash into the economy would pose significant economic risks, both in terms of inflation and industrial relations.
The obvious point to make is that a pay increase for public servants will trigger pay demands across the economy in the private sector, with (in some cases) the very same trades unions turning around to private sector employers and demanding that they match the offer made by the state. Many businesses simply couldn’t afford that.
In addition, the injection of that much cash into the economy has significant inflationary risks: If inflation is understood, as it should be, as being caused by too much money chasing too few goods, then adding five or six billion to the public’s spending power is likely to cause prices to rise further, eating away at the value of the pay increase and starting a vicious cycle of demands for further increases.
The Unions, therefore, must know that they’re not going to secure anything like 19%, however just their claim for that amount may be.
That said, the Unions have some leverage in their back pocket which they can use. The Government, naturally enough, wants a long term pay deal which locks in pay rates for the public sector for the next five or six years. But there’s a general election next year, and their main priority will be getting through that election with the public sector broadly content on pay (there’s a lot of public sector votes) and free from industrial action.
In that context, the Unions might be able to settle for a smaller increase over a shorter term – a kick to touch for the next Government to deal with. Further, the closer we get to a general election, the more concerning public sector discontent becomes for the Government. Nobody wants to face the public in the midst of widespread public sector strikes.
And of course, from the Union point of view, a Government is rarely weaker than when it is about to face the electorate. A freshly elected and popular Government with a mandate might have the ability to get tough with the unions. This Government just wants to get through the election without upset.
All of this adds up to putting Paschal Donohoe in a difficult position: He cannot possibly give the Unions what the Unions say they want. But he also cannot afford for the talks to break down completely. My money, therefore, is on a slightly larger deal, over a slightly shorter period. Don’t be surprised if these talks end with an agreement for about 10% extra for public servants, paid over two years, with fresh talks to take place after that.