IBEC boss quick to feel weight of pay deal

Mr Turlough O'Sullivan, the director general designate of IBEC, is undergoing a baptism of fire. Following in the footsteps of Mr John Dunne, who has established IBEC as one of the key social partners and advocate of the employers, was never going to be easy. Now, just three months after the implementation of the latest deal, Partnership for Prosperity and Fairness, the whole concept is coming under intense pressure.

Mr O'Sullivan as director of human resources at IBEC had a key role to play in the negotiations but he now has to combine that role with the top job. It is under his watch that the consolidation of the principle of the national deal, or perhaps its death throes, will be played out. He does not formally take over until September 1st but, such is the pressure from workers across the economy for larger than negotiated pay rises, he is already having to make the employers' position clear.

Observers at the partnership agreement negotiations say Mr O'Sullivan is a formidable opponent, a man who knows how to cut a deal but who is sometimes less polished than the patrician Mr Dunne. He laughs off the suggestion that they played a good cop/bad cop role and says that, contrary to reports, he has never banged a table.

He is a powerful advocate of the partnership approach but he is also a pragmatist who is unlikely to say it is all or nothing. His key message, he says, is that "we need to work on working well together, on being tolerant and understanding. We are strongest when we unite".

Partnership, he points out, has been extraordinarily successful and IBEC is absolutely committed to it. It is, he says, the reason why the State is no longer an economic basket case. It is the reason why debt is no longer crippling. It has made us an attractive location for foreign investment and has contributed a stable industrial relations environment and phenomenal jobs growth.

He points out that at the time of the first agreement there were tax marches, with PAYE workers on the streets demanding more equitable treatment. At that time there was penal taxation, inflation was high as were interest rates. Wages chased those but never caught up .

Nevertheless he admits there is a question mark about the process, particularly over whether the terms can be adhered to. He says most employers are adhering to the pay terms set out in the PPF. But others are not, either because of a threat of industrial action or because they need to pay skilled people more in order to attract or retain labour.

"If the terms are stuck to, there will be another agreement; if not, it could signal the end of the partnership process as it has been known. But it is too early to say if it is time to change."

He repeatedly points to the benefits of sticking with the agreement for workers. There will be further reform of the PAYE system with another £1.5 billion (€2.14 billion) tax cutting package pledged, he says. The community and voluntary sector is to benefit to the same amount while there will also be other measures which will, be negotiated in the upcoming budget talks between the social partners.

He is also swift in his denial that the corporate sector has been consistently winning a larger slice of the national cake at the expense of labour. Labour's share of GDP has been falling while profits have been growing. But according to Mr O'Sullivan there would be no jobs without profits.

"Profits is not a dirty word. Over 650,000 new jobs have been created over the past eight years and all workers are better off by 40 per cent in real terms. If multinationals did not make profits here the jobs would go elsewhere."

He adds that the last Budget was a bonus budget and over the three years of this agreement taxpayers can expect to see a 25 per cent increase in incomes.

But the real problem is runaway inflation. It is now at 5.5 per cent and set to accelerate further, eroding the benefit of this year's pay rise under the agreement. But Mr O'Sullivan still stresses that there is no review clause in the agreement. "Neither side sought to have it included," he says. What does happen, he says, is a quarterly implementation review and the next one is set for July 27th.

He adds that more has been made of the disagreement between IBEC and the ICTU than needs to be. SIPTU, the largest union, he says has put forward a number of options and has made it clear that cuts in indirect taxation would be a preferred. These will be discussed in the upcoming negotiations on December's Budget.

Mr O'Sullivan himself warns that the overall impact of such measures needs to be taken into account. But he says if the Government were to announce its intention to cut indirect taxes that could delay a good deal of activity until it came into force and that would help the inflation figures over the coming few months.

He also insists that inflation will come back towards the 3 per cent average assumed when the agreement was negotiated earlier this year. After this week's figures it is now inevitable that the Department of Finance will have to revise its average forecast for the year to around 5 per cent. Depending on the euro and oil prices it may not fall quickly over the next year.

Nevertheless according to Mr O'Sullivan the pay already awarded could cause problems for companies in more vulnerable sectors of the economy. And he is no hurry to change the economy. Old firms in older industries such as textiles and clothing should be protected. "There is a strong case to safeguard those industries if they have any chance of survival," he says.

He also points to the need for a consumer awareness programme to encourage consumers to shop around particularly for petrol as prices can vary enormously. The Government he says is taking the problems seriously and the price cap on liquor will give at least a psychological boost. IBEC, he says, would expect a broadly positive response from most employers when asked to consider putting back any price increases for the coming months. "Inflation is not just bad for consumers it is bad for the economy. We do not want to go back to the bad old days."

What is also critical, he says, is a full and speedy implementation of the National Development Plan. "The outstanding deficit from the 1980s is the lack of infrastructure. We need to see the plan implemented. We need to see action of which there has been little sign yet. The same is true of housing, he says. Again the difficulties have been identified but we need to see action now."

The labour market he says will move back into equilibrium which will take pressure off wages. He calls both for more immigrants to be granted working visas and more to be done to cut the Live Register even further. He says that of the 150,000 people still unemployed there are significant numbers who could work but are not doing so because they are participating in the black economy.

Despite his background and the prominence of the issue he is reluctant to say that industrial relations is IBEC's raison d'etre. According to Mr O'Sullivan the various business sectors such as food and drink and software are equally important as are policy areas.

Committees on areas such as telecommunications, energy, the environment, social policy and European affairs are also vital he says. As is enterprise, business policy including economic affairs and the regions.

E-commerce, both as an opportunity and threat, is also important. And he is ready to define polices in these areas. The Groceries Order, has been a bone of contention with the Competition Authority, and the Tanaiste, Ms Harney. The order, which bans below net invoice selling, is one area where IBEC does not insist on full competition.

Mr O'Sullivan points to the higher rate of inflation of foodstuffs not covered by the order and talks about making sure the basic necessities of life are affordable. But others suggest that perhaps the real key to IBEC's opposition to the abolition of the order, which bans below net invoice selling, is that small manufacturers could be squeezed. As too of course could the margins of the larger manufacturers.