The public sector pay deal will go out to union members to vote on in the weeks ahead. It is less than their negotiators were looking for, but nonetheless they would be well advised to accept it. Here are the key reasons why.
The outlook is uncertain
Forecasts for the economy are for reasonable economic growth this year, but there is no doubt that the outlook remains murky. The jobs market is slowing and while unemployment has hit historic lows, it is rising. We have seen lay-offs in tech and some other traditional manufacturers, while the SME sector is clearly under pressure. This should ease private sector pay growth – a recent survey by Indeed in conjunction with the Central Bank of Ireland showed pay increases running at 3.7 per cent in December, down from 4.3 per cent the previous month as they noted some softening in the market, while the latest AIB manufacturing survey shows wage pressures easing in that sector. The uncertain outlook also increases the value of public sector job security.
There is a clause in the text of the deal which allows its terms to be revised “where the underlying assumptions of the agreement need to be revisited”. So if the roof falls in on the public finances the Government could theoretically seek changes. But with the exchequer in strong surplus there should be cash to pay the terms. And on the other side, the unions did seek and gain improvements in the last deal under a similar clause when inflation took off.
If you feel you can’t afford an EV, you could be right
If our finances go flat, how will Ireland pay its bills?
The key decisions now facing Donald Trump which will have a big impact on the Irish economy
Election campaign got off to spluttering start on economic and budget issues. Here is what it all means
The pay terms should be ahead of inflation
A key – if predictable – concession late in the talks was to pay more in year one. With the Central Bank forecasting inflation of 2.3 per cent this year, the initial 2.25 per cent increase payable as from January 1st, largely inflation-proofs earnings, with larger percentage increases going to lower paid workers. Two further 1 per cent rises are due this year, with a total of 4 per cent next year and 2 per cent in the first half of 2023. With inflation due to fall towards 2 per cent, the pay rises should be ahead of this and roughly in line with reports of private sector settlements. Attracting suitably qualified applicants will remain an issue for the public sector in some areas.
There are no significant new ‘asks’ of public servants
Reading the details of the deal, it is clear that it is largely a pay deal, as opposed to one involving larger workplace change. It does commit trade unions to continue to engage with efforts to increase productivity and improve services under structures put in place under previous agreements – and here the onus is on public sector management. As part of the deal, 1 per cent of the 10.25 per cent is due to be paid in 2025 as part of a “local bargaining” clause, where management and unions in specific areas will engage in negotiations. A framework for this is due to be agreed by June. Under this process, public servants can negotiate total increases of 3 per cent, but 2 per cent of this will be payable as part of a successor agreement.
Pre-2013 pensioners are protected
At the moment, public sector pensioners who joined after 2013 are members of the Single Scheme, and their annual increases are linked to inflation. However those in pre-2013 schemes get increases which must be signed off by the Minister for Public Spending. The general practice is that these increases keep pace with pay rises for serving staff, which is a valuable perk.
While it does not appear in the text of the agreement, according to the website of the Forsa trade union, “the negotiators secured a commitment that the pay increases would be applied to public service pensions for the duration of the agreement.” A recent actuarial report on public sector pensions calculated that the outstanding liability to the State could be cut by close to 20 per cent if the payments to these pre-2013 pensioners were adjusted in line with the consumer price index instead of the earnings of serving staff. So older public servants who joined before 2013 have a particular reason to support the deal.
Existing benefits are protected
The pay rises also apply to all existing allowances. And public servants continue to benefit from the increments system, whereby they move up pay scales within their grade year by year, up to a maximum, subject to “satisfactory” work performance. In some cases having reached the top of the basic scale, long-service increments become available after a period. For example, the basic Higher Executive Officer scale in force before the latest deal started at €54,764 and rose to €64,359 in six steps. Two further payments after another three and six years brought the total to €68,970.
Public service pay is not out of line with private sector
Civil servants cashed in during the Celtic Tiger years – notably through the benchmarking process – but suffered heavy cuts during the financial crash, most of which have been unwound. Taking a long-term view, and on the basis of CSO data, it was only in 2019 that the average weekly pay rates in the public sector regained their post-crash level. Since this happened, average weekly public sector pay has risen by around 16 per cent, while prices – as measured by the CPI – are up 18 per cent. In the same period, average weekly earnings across the economy are up by 17.5 per cent.
The rise in earnings of individual public servants over recent years will depend not only on where they work but also where they are on the increments scale. A 2018 CSO report found that lower paid public servants did a bit better than those in the private sector, with the opposite for those in higher earning jobs. There has been much debate about how this is best calculated and, in particular, how relatively generous public sector pensions are counted in, particularly for pre-2013 entrants. Changes in the pension terms of post-2013 public servants have brought them more into line with the private sector, though overall the defined benefit structure – becoming less common in the private sector- is a significant advantage.
The Government needs money to expand the scale of the public sector
A key driver of the rising public sector pay bill has been increased numbers. Ireland’s public sector is relatively small by international standards and the population is rising – increasing from 4.7 million in 2016 to 5.1 million now. Over the same period an additional 75,600 have been hired in the public sector – a rise of not far off one quarter – while the public sector pay bill has gone up by one half. Strong public finances, in other words, have allowed recent governments to both increase numbers and the pay of existing staff, including restoring many of the cuts made during the financial crash.
This raises two issues for the next few years. First, will the public finances remain sufficiently buoyant to allow this trick to be repeated and to fund the growth of the State. Bodies such as the Fiscal Advisory Council have warned that, before long, Ireland needs to decide how to pay for the bigger State, along with the ageing population.
Second, the key political challenge is to deliver better public services in return for a larger and better-paid public sector. There has been progress in some areas, but equally a feeling that State planning has been caught out by recent economic success and the big rise in the population. So as well as the debate about how to pay for a bigger State, the arguments about how to make it work for the public – a complex and multifaceted argument into which bodies such as the OECD have jumped – will run and run.
