Government blindly hopeful in pursuit of pay agreement

THE great and the good are due to gather on Monday in Dublin Castle for the unveiling of a new national agreement - Partnership 2000.

Last night a few final obstacles remained, meaning that the plan to publish the deal today was postponed and that agreement on aspects of the programme for social inclusion remained in doubt.

National agreements have, by and large, worked well for the economy since 1987. But if the new one was to work it had to be different. And there were two essentials. The first was that it should ensure public spending and particularly public pay was being brought under control. And the second was that it should take into account the need to prepare for monetary union. On both counts it fails.

The danger is that Partnership 2000 could become a deal we can't afford. The social partners are dividing up the fruits of an economic boom, the best days of which may already be behind us. The programme includes promises of lower tax and higher spending to the tune of at least £2.25 billion.

In the final stages of the talks, Government posturing about not wanting a deal at any price was forgotten. Faced with demands from public sector workers for the same headline pay increases as the private sector, the Government didn't so much blink as close its eyes and give in.

The arguments over public pay are well rehearsed. On the face of it a 9.25 per cent increase over three and a bit years may not seem that large. But the problem is that, as Department officials themselves calculate, this increase will almost double when the carry-over costs of the last agreement and factors such as increments are added in.

This means that the public pay bill will rise by £300 million a year over the three years. And it is not clear that the Government will get anything meaningful in return in terms of improved flexibility and modern management practices.

The same goes for public spending in general. The Government makes a valid point that higher spending is demanded by the public in many areas. But the problem is that the overall increase in spending does not seem to be resulting in a commensurate improvement in the level of services.

And the Government is sending out the wrong signal in terms of controlling spending. A couple of weeks ago Ruairi Quinn announced a spending cap of £13,014 million for 1997 and said no further cash was available for public pay. Yesterday he conceded that the figure had risen to £13,038 million and would rise further in the Budget. Why announce a target in the first place, if it is to be officially abandoned a few days later?

As argued here before, the Budget will be the only instrument available to the Government, to influence the overall level of economic activity in monetary union.

There is a strong argument that significant scope will be needed to allow the Government for example, to loosen the reins a little if the economy is hit by a specific economic shock which affects Ireland more than the rest of the union. The document aims for a borrowing level of 1.5 per cent of national output, but given the strength of the economy even more ambitious targets would be needed to give-scope for manoeuvre if growth slows.

Overall, the agreement makes precious little mention of the new economic environment which monetary union will bring, beyond a ritual nod to a National Economic and Social Council report which called for "an adequate information flow and burden sharing" if a sterling depreciation hits Irish business after monetary union.

This is nowhere near enough in terms of assessing how business will respond to difficult times within monetary union.

At least some competitiveness review mechanism has been established where this issues may be raised. But crucial questions remain about how the necessary flexibility can be built into areas such as wage bargaining.

Instead of addressing such issues, the new partnership programme pins all its hope on the continuation of economic boom and bloom. Let's hope its authors are not disappointed.