What does taxpayer get out of benchmarking?

 Economics: The debate on public sector pay benchmarking never really took off. But it might yet. The benchmarking body published its report last July, recommending an average 8.9 per cent pay rise for public servants. The report was widely criticised by economic commentators - but then most things are.

No other constituency took up the cudgels against it. The social partners signed up for it in the new national deal, including the paragons of fiscal virtue in IBEC. And the Opposition parties could hardly attack an arrangement that will give many voters extra cash. Fast forward a year and the secondary teachers are angry. The Department of Education has informed them that the number of concessionary teachers is to be cut from 1,000 to 700 for the next school year. Classes will be cut, they argue, pupils will suffer.

The reason the Department of Education is being forced to cut back is clear enough. Under the terms of the Benchmarking Agreement, teachers are to receive special pay rises averaging 13 per cent over the next few years. When added to the basic pay terms of the new national deal, this means they will receive an average increase of 20 per cent by mid-2005. Pay and pensions account for almost €4 billion of the Department's budget of just over €5 billion. So the impact of a 20 per cent pay rise is to add €800 million to the cost of employing existing staff by mid-2005. No wonder the Department is looking at cutting numbers.

Now this is not an argument about how much teachers - or any other public servants - should be paid. But the consequences of the decision to increase public sector pay are indisputable and were acknowledged by the Minister for Finance in his Budget speech last year. Public sector numbers are to be capped this year and reduced by 5,000 over the next three years. So we will have fewer, but better paid, public servants.

What does this mean for the quality of public services? This depends on two things. First, what will it mean for non-pay spending, in other words, all the other expenditure needed to run the public services, apart from paying staff? The signs are that given weak tax revenues, there will be little extra money for spending in this area.

The second key question is whether better-paid public servants will be more productive, making it possible to supply the same or a more improved service with fewer staff.

Here the Minister for Finance, Mr McCreevy, said recently that commentators critical of the benchmarking report should go and read the commitments for increased productivity made by public servants in the new national agreement - Sustaining Progress. The deal is that the first 25 per cent of the money - which is going into pay packets around now and backdated to December 2001 - would be paid unconditionally. The remaining 75 per cent would be based on productivity improvements, verified by special committees.

The problem is that the money is now promised to be paid over, but many of the productivity commitments have still to be negotiated. The details that Mr McCreevy urges us all to read show there is a lot of talking still to do. In all the real crunch areas - longer working hours, performance management systems, etc - more negotiations are promised before action.

In the civil service, for example, open recruitment is to be introduced, but generally only after consulting with trade unions about whether it is required for specific jobs. The unions have committed to co-operating "in circumstances where there is a need for it". Similar discussions are needed for opening up the promotion system. In other words, real commitments to change have still to be tied down in key areas.

In the health service, there is progress in putting in place a new industrial relations structure. But, again, commitment to providing services over a longer time span will require more discussions. Opening up recruitment in clerical and administrative grades to those outside the current system is to be subject to a "cross-sectoral review" which will take a year. And management and unions are only promising to "work energetically" to develop a system of performance management. Again, further talking before real commitments to change.

Meanwhile in education, the first commitment asked of teachers is some flexibility in the holding of parent-teacher and staff meetings. This will be introduced for the next school year. However, bear in mind that these concessions were already bought and paid for under a previous national programme - the Programme for Competitiveness and Work - it is just that they have never actually happened. "Immediate discussions" are to be held on further flexibility for parent/teacher meetings. And new arrangements for less disruptive in-service training have still to be agreed between the Department, school managers and teachers' unions.

Can the verification committees for the various sectors legitimately hold back payment if sufficient progress is not made? Maybe they can - and will. But it would look a safe enough bet that the money will be paid over in the vast majority of cases and in many cases, discussions will be "ongoing" on productivity improvements. It would be a brave committee that would block the way to what Senator Joe O'Toole called "the ATM machine".

And if productivity is not improved, the inevitable result will be cutbacks to the level of service, unless the Government either borrows more - and EU rules put a tight limit on this - or increases taxes and other charges. Hence the hints that were dropped this week about a substantial PRSI hike to fund elderly care - and the Government's examination of new carbon taxes.

If the economy starts to recover later this year, the squeeze may not be too severe. But if the downturn were to intensify, the Exchequer finances will come under real pressure. The Department's own calculations show that if growth is 1 per cent lower than the 3.5-4 per cent growth rate expected this year and next, borrowing could be pushed from a planned 1.2 per cent of GDP next year to over 2 per cent or more.

So we are either heading for a tight budget or a decidedly nasty one. Either way the focus will be on the €1 billion plus rise in the public pay bill next year under the new agreement terms including benchmarking. And the question will be: what are we getting for our money?