More cuts to public sector pay bill possible

ADDITIONAL CUTS to the public sector pay bill – either through a new voluntary redundancy package or increased working hours – may be necessary to address the budget deficit, according to the Economic and Social Research Institute (ESRI).

“There is huge resistance to cutting pay – many people have made adjustments to their lifestyle,” Prof Joseph Durkan of the ESRI said as it published its latest quarterly economic commentary. “The logic of that is that you have to improve productivity . . . and that means more people will have to work much longer hours.”

A new voluntary redundancy package could be introduced to reduce numbers in the public service, according to the authors of the report.

The institute’s recommendations come as figures released yesterday showed continued economic weakness in the period between April and June this year.

Gross domestic product – the widest measure of economic activity and the most closely watch internationally – stagnated between the first and second quarters of the year. Industry expanded strongly on the previous quarter, but all other sectors – including services, transport, construction and agriculture – recorded falling output.

The effects of the international slowdown took their toll on the export sector. For only the second time since 2009, the seasonally adjusted volume of exports contracted on a quarterly basis, albeit only marginally.

Separate Central Statistics Office figures showing the value of payments to and from the rest of the world were much better. They showed a substantial surplus on the balance of payments in the second quarter. Such surpluses are usually a sign of a competitive economy. Irish residents’ earnings from exports and their income from foreign investments reached a record €61.3 billion in the second quarter.

News that the economy had stagnated in the second quarter did not impact on market sentiment, however. Yields on Irish nine-year government bonds fell below 5 per cent yesterday for the first time since August 2010.