Papers show 2008 pay deal agreed despite warnings on economy

The Fianna Fáil/Green government agreed a social partnership deal with trade unions in mid-September 2008, containing provisions for pay increases in the public and private sectors, just days after the department of finance warned minsters that the economy was facing serious difficulties.

Official cabinet papers released under the Freedom of Information Act show that on September 3rd, 2008 then minister for finance Brian Lenihan warned that the economic slowdown had become "more pronounced" over the summer and a tax shortfall of at least €5 billion was now likely.

Within a fortnight, the department of finance told ministers in a memorandum marked “Secret” that the economic picture had deteriorated further and the tax shortfall could now hit €6.5 billion.

Unchecked spending

The department said that, based on emerging unchecked spending and revenue trends and more restrained economic activity, the likely projected general government deficit for the period 2009-2011 would be of the order of 8 per cent-8.5 per cent of GDP annually on a pre-policy change basis.

"The domestic economic data which have become available over the past few weeks weeks have been poor. A substantial part of the domestic economy is now contracting and therefore in overall terms negative GDP growth is now more likely for Ireland this year. The housing sector has not bottomed out and will not do so until the end of 2009. The commercial construction sector has weakened significantly and is set to weaken further."

“The competitive position of the Irish economy remains weak – wages here have increased much faster than in our trading partners. Irish prices are 26 per cent higher than in the euro area,” the department of finance memo said.

On the same day the memo was written, September 17th, the government agreed a draft social partnership deal with trade unions, some employer groups and others.

The deal provided for pay increases of 6 per cent phased over 21 months. In the private sector there was to be a pay pause of three months, while a pay pause of 11 months was set to apply for public sector workers.

Pay in public service and non-commercial semi-states was to be increased by 3.5 per cent on September 1st, 2009 and by a further 2.5 per cent from June 1st, 2010 – with 0.5 per cent extra for those earning below €22,463 .

Employees earning less than €11 per hour in the private sector were also to qualify for the additional rise of 0.5 per cent.

The cabinet papers also contain a document, also dated September 17th, which said the government had on that day noted the draft terms of the social partnership deal as well as the importance of early delivery of public service modernisation.

Ministers were urged to “support and advocate the terms of the agreement”.

Secret memo

On September 26th, Mr Lenihan told the cabinet in another secret memo that even taking account of good progress made in securing savings in 2008, the public service pay and pensions bill in 2009 would see an increase of €90 million or 4.6 per cent.

He also said public service bodies planned to establish “at least” an additional 4,240 full-time posts between the end of December 2008 and December 2009.