What you need to know about the public service pay talks

Last October’s Budget represented the first chink of light after €30 billion of austerity hits since 2008, with the package restoring €1 billion via tax cuts and spending increases.

The public sector pay talks, getting under way on Tuesday, are the second act in this drama, as Ministers and public sector trade unions sit down to try to agree on how much of the pay cuts should be restored, by when, and on what basis. In total, the public sector pay bill fell by €3.1 billion between 2008 and 2013, due to a combination of lower pay, the pension levy and cuts in the staff numbers. Lower pay and the pension levy accounted for more than €2 billion of this.

Will there be a deal?

The Government would not have entered talks unless it felt a deal was possible. The challenge is to find a basis on which the trade unions would recommend a deal to their members. Indications from a January Ibec survey are that close to six out of ten private sector companies will increase pay this year, with 2 per cent being the average for firms which were granting increases. A two per cent in the public sector pay bill next year would cost a bit under €300 million in gross terms, though a significant amount would come back to the exchequer in higher taxes. This is a significant figure given that the total budget room for manoevure is around €1.5 billion. Given the limited room for manoeuvre, senior government officials warn a deal cannot be guaranteed, certainly one that satisfies all the different public sector constituencies.

Will everyone be treated the same?

If there is to be a quick agreement, then the negotiators are unlikely, at this stage, to be able to get into detailed sector-by-sector negotiations. A simpler option would be to agree some across-the-board “ give” for 2016 and set in place a process to look at what would happen thereafter. A question for both sides is how firm commitments on pay restoration beyond 2016 will be .

What might a deal look like?

The indications are that the initial focus will be on the pension levy, introduced in March 2009 as the first hit on public sector take home pay. Higher rates apply to higher earners, with the average take coming to 7 per cent of pay. Cutting this levy could be done in a way that delivers something to most public sector earner, but most to lower earners, probably by exempting a set portion of income from the charge. Unlike an actual rise in pay, it would not knock on to a higher bill for public sector pensions. The levy takes in around €900 million for the exchequer each year, so it could not be abolished in one go.

How will the future be mapped out?

Statements by the Taoiseach and the Minister for Public Spending give some indication of their approach. The Government will insist that productivity changes under the two agreements reached during the emergency – the Croke Park Agreement and the Haddington Road Agreement – remain in place. They will offer something back in 2016 and try to tie further “ restoration” to productivity gains. This leaves two questions for the trade unions, first, how much to settle for in 2016 and second, what to sign up for beyond that.