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  • irishtimes.com - Posted: January 26, 2009 @ 11:55 am

    Finding a way forward on the economy

    Deaglán de Bréadún

    This week, decisions are being taken that will have a huge impact on all our lives. Government, employers and unions have been dancing around one another for some time but now the music is about to stop.

    If I were a betting man, I would say that some kind of deal or arrangement will probably be reached in the end. But this would only be after fairly protracted negotiations: there is no room for complacency. 

    Talking to some of the participants yesterday, there was an undoubted acceptance that the situation we’re in is a very serious one. There is also a realisation that a cooperative arrangement is infinitely better than confrontation.

    We don’t want to end up with general strikes, marches on the streets and maybe cars being overturned and set on fire. This is 2009, not 1913 (year of the Great Dublin Lockout).

    The key point seems to be this: what can the Government and employers give the public sector unions in return for accepting, say, a pension levy that would mean a significant reduction in take-home pay for their members?

    The phrase ”equality of pain” comes to mind. When I put this line of thinking to a senior politician, he responded that the business community knew all about pain at the moment with factory closures, credit crunch and all the other elements that go with being in recession.

    But the fact is that some people in this society did very well out of the Celtic Tiger years and now it’s time to put something back. An increase in the levy on second homes sounds like a good idea. The current charge is only €200 and an increase in that does not seem unreasonable. Mind you, it won’t make life any easier for developers who may have rows of holiday holiday homes lying idle in our seaside resorts.  

    The increased second-home charge could perhaps be a preliminary move towards the re-introduction of domestic rates, probably under another name. That would be very controversial as many people, particularly older folk, are living in valuable houses but on a very low income. Perhaps going back to Land League days, there is a deep pyschological resistance among Irish people to this type of charge.

    On the other hand, the amount of money raised from Stamp Duty must be virtually nil these days. That form of taxation depends on  a high volume of transactions and the houses simply aren’t selling these days.

    The Irish Congress of Trade Unions has come up with the idea of a National Recovery Bond. This would be sold to the public and, no doubt, there would be a return for investors. It might prove popular, particularly if the terms were attractive: one thinks of the SSIA. The Government side is quite interested in this idea.

    An issue that has not been exercising the public mind as much as it should is that of private sector pensions. There  are real problems there and it’s very worrying. Something needs to be done about it and I know the issue is central to the current talks.  

    In any negotiation, everyone has to get up from the table with something to bring back to their constituency. They need be able to say, “Well, we had to concede this and that but we got the following in return.”

    We could be in a situation by Friday where the news is that a public sector pension levy is agreed with the social partners but as part of a long-term and fairly wide-ranging package of measures including raised taxes on second homes, a national recovery bond and moves to shore up private sector pensions. I’m not sure how that latter would be brought about, perhaps a state guarantee similar to what the banks got.

    One aspect of the debate over the last few months that has no bearing on reality is the call for the Goverment to kick ass, impose a substantial pay-cut on the unions without consultation. they’re lucky to have a job, country must be saved, etc. That’s not the way things are done in this country. It is also a recipe for disaster.

    • Ray D says:

      Sorry the solution is much simpler and fairer. 20% rate of tax increased to 25%, 41% to 45% and a new rate of 65% for those with income over €100,000. Other income – such as deposit interest and dividends – should be taxed at higher rates – as should perks.

      The suggestions you make all have hidden inequities in then and are not based on ability to pay by all or a fair contribution from all.

    • Deaglán says:

      But it seems that the higher the rate of income tax, the less money comes in. So Govt people tell me. It’s a crude solution and would kill the spirit of enterprise, I’m told.

    • Niall says:

      “But the fact is that some people in this society did very well out of the Celtic Tiger years and now it’s time to put something back.”

      Too true.

      This is what bugs me about certain individuals who work in the private sector when they speak of pay cuts for those working in the public sector. If you worked in the private sector, you benefited far more from the Celtic Tiger than if you worked in the public sector. We were told that this was the price of job security, decent pensions and thje like, but now when times are tough, we’re told that it’s unfair that those who are paid from the taxpayer’s purse have job security and stability when those in the private sector do not.

    • peter murray says:

      The front-man for the public service unions, David Begg has stated that the pain must be shared and that his public service members cannot be expected to shoulder the burden of recovery.


      What part of the pain of the 400,000 (private sector workers) who will be unemployed this time next year do your public sector workers intend to share?
      Private sector workers have also seen their pensions and retirement security vanish in the stock-market melt-down. What part of this pain are your public sector employees planning to share, Mr Begg?

      And we all know that the wretched bankers and developers did well in the good years. But so did the public sector employees who gorged royally on the stamp-duty and other taxes raised from the proceedings of the property bubble. Are you going to insist that the people who feasted on benchmarking will share their gains with those whose wages are now in freefall?

      I would counsel reticence, Mr Begg.

    • michael d says:

      Could Ray D please explain to me how making people pay a contruibution for a good pension is inequitable. Also we tried raising income tax to pay for public services before and it didnt work. We cant afford to make the same mistake again or the private sector will be destroyed and then we will really suffer. What really worries me is the reluctance of public servants to make any sacrafices for the common good.

    • dealga says:

      Niall, you have heard of the bench-marking process I assume? The argument you’re making now is the exact same one that was used to justify that ‘process’ and all the increases in productivity we, who paid for it, were told we’d get.

      Do public sector workers have any notion at all of who actually pays their wages?

      Which reminds me – this new thing we keeping hearing (‘the public sector didn’t cause this crisis’) is a nonsense. If the public sector had delivered the efficiencies and productivity increases they were supposed to, when getting massive pay rises to compensate them for not being in the private sector, then we wouldn’t have such a large deficit in public spend.

      Increasing income taxes reduces disposable income, meaning people spend less, thus reducing the VAT take, which also causes more businesses to reduce staff or close, thus depriving revenue of those very same income taxes AND increasing the social welfare burden on the state.

      The middle classes – the people who are well off enough to not require State assistance but who aren’t rich enough to take advantage of tax avoidance vehicles – effectively bankroll this country. The worst move of all would be to cause them more pain.

    • Ray D says:

      Civil servants pay a contribution of 5% towards their pensions. Entrants pay this for 47 years to benefit for 40/80ths pension only at 65 so Government gets a bonus of an extra seven years’ contribution.

    • Ray D says:

      Sorry I should have added that pay awards in the public sector already contain a substantial deflator to allow for the alleged extra value of public sector pensions compared to private sector pensions.

    • peter murray says:

      This alleged contribution of 5% by public servants towards the cost of their pensions is a nonsense. Their gross salaries are already 20% greater than salaries for equivalent jobs in the private sector, without taking the value of their pensions into account.

      In recent court proceedings which I am personally acquainted with it was necessary to put a market value on a secondary-teacher’s pension on retirement at 57 years of age. The actuary who valued the pension entered the caveat that there was no pension product available on the market that provided a pension which was guaranteed and escalated automatically like public service pensions. However, he put a capital value on the sum which would buy an annuity which would produce the equivalent of what the teacher would get in lump sum and salary on retirement at 57. That capital value was (wait for it…) €1.85 million!

      Should we be wasting our time listening to the whingeing of these millionairs? (Irish teachers also get paid, after tax, more that 1/3rd more than their French equivalents).

      Public servants should not be levied for their pensions. The market value of their pensions should be fairly assessed and they should pay a contribution of 50% of the equivalent market premium costs of their pension provision. At present, that would amount to 12 – 14% of their salaries. If they don’t want to pay up they should have the option of making the same stamp-contributions as everyone else and make do with the state contributory pension (like everyone else who decides not to buy a private pension).

    • Niall says:

      “If the public sector had delivered the efficiencies and productivity increases they were supposed to, when getting massive pay rises to compensate them for not being in the private sector, then we wouldn’t have such a large deficit in public spend.”

      Just curious, but which efficiencies are you referring to?

    • Ray D says:

      It was nice to see Dermot Ahern admitting that the deep recession that we have here is entirely the fault of the Government. It’s simple really. We have expenditure of 60 billion and a tax take of 40 billion. The Government has provided for expenditure to soar in this decade for no good reason and against the advice of advisers – see ESRI reports since 2001/3 – and on the other hand both demolished the tax base over the years and relied instead on income from property that everyone knew was unsustainable.

      It is not the global financial turmoil that caused Ireland’s problem but our own profligate Government. If proper policies had been followed Ireland would have been best placed to beat financial meltdown.

    • Deaglán says:

      I had a conversation with a homeless man who sleeps rough in the vicinity of Leinster House. “They are worried about surviving this downturn, I’m worred about surviving,” he said.

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