THE PAY premium Irish public servants enjoyed over their private-sector counterparts was higher than that in other EU countries even before the first round of benchmarking came into effect, a leading economist has claimed.
Jim O’Leary of NUI Maynooth said the basis for his view came from two studies of public-sector earnings by the ESRI, which showed the pay gap between the public and private sectors risingfrom 10 per cent in 2003 to 22 per cent in 2006.
In a presentation to the Fianna Fáil parliamentary party this week, Mr O’Leary said the ESRI analysis suggested that “the increase in the premium from 10 per cent to 22 per cent between 2003 and 2006 is mostly attributable to the first round of benchmarking”.
Mr O’Leary told The Irish Times yesterday that the finding of a 10 per cent margin between public and private sector in 2003 was very interesting in an international context.
“Studies from other European countries would suggest that the typical public servant premium in countries like the UK, France and Germany would be in the range of 4 per cent to 8 per cent.”
“The [finding of a 10 per cent gap] suggests that the premium in the Irish case even before benchmarking occurred was higher than average in Europe,” he said.
The increases in pay for the public service as well as in social welfare, he continued, were “boom-time phenomena financed by a boom-time splurge in revenues”.
Mr O’Leary was one of three economists who presented their separate analyses of the current crisis in the public finances to Fianna Fáil TDs and Senators this week.
The others were Colm McCarthy from UCD and Alan Ahearne of NUI Galway, who is the economic adviser to Minister for Finance Brian Lenihan.
The Irish Timeshas obtained copies of the presentations made by all three.
Mr McCarthy, the author of the recent report which identified €5 billion in public-sector cuts, said that when the Consumer Price Index (deflation) of minus 4.4 per cent was taken in account, the real growth in State spending this year has been 11.5 per cent, higher than in any other year in this decade, including 2001, when it was over 11 per cent.
“In real terms, after inflation, spending has never been less than 43 per cent since 2000,” he said. “The cumulative increases have been enormous . . . and under all headings.” He said that the share of gross national product being spent by Government had now returned to 1980s levels.
All three economists argued that “frontloading” or “upfront” spending cuts were preferable, adhering to the Government’s 2013 target rather than the more moderate adjustments over a longer-time frame to 2017, as set out by the Irish Congress of Trade Unions. Mr Ahearne argued that if the 2013 targets were achieved, Ireland would have a national debt of €160 billion or 72.3 per cent of GDP.
In contrast, he said, in a scenario where the Government chose to follow a 2017 target, the national debt would be €204 billion, or 92.2 per cent of GDP.
Mr Ahearne argued: “International evidence is clear that a strategy based on spending cuts rather than increases in the tax burden is more likely to be successful.”
He also said that the third rate of income tax of 54 per cent for those earning over €100,000 would mean a marginal tax rate of 63 per cent for PAYE workers in that band, and of 66 per cent for self-employed people.
Mr O’Leary said that the tax burden, as a proportion of GNP, would rise to 35 per cent, the level at which it was when the economy was well-balanced and strong between 1995 and 2000.
Mr O’Leary said the “fiscal effort” needed to bring public finances under control was of a lower scale than that required in the 1980s. But he said the fact that currency devaluation is not available and the absence of inflation were both handicaps to recovery.