Intricate dance of the pay deal about to begin again

Before the end of the month – possibly as early as next week – a delicate dance between negotiating teams from the Irish Congress of Trade Unions (Ictu) and the Department of Public Expenditure will begin.

Then they will assemble across the table from one another to start talks towards another pay deal for the 350,000 people who work in the public sector, but this time in a climate of inflation.

Insiders hope the meeting can take place, for the first time in a long time, in person, probably in the department’s Merrion Street headquarters. The two sides are “not yet at the stage” where they must meet on neutral ground, jokes one.

The State side will be led by Colin Menton, an assistant secretary in the Department of Public Expenditure, whose team "mark" various government departments and other parts of the public service.

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The union team is headed by Ictu president and chair of its public services committee Kevin Callinan – a brother, as it happens, of the newly-appointed secretary general of the Department of the Taoiseach and the most powerful civil servant in the country John Callinan.

The brothers Callinan will not come across one another in the negotiations, but the public services committee of Ictu and the public service pay and pension division of Department of Public Expenditure are not strangers to one another. They have thrashed out many pay agreements in the past. What is certain is that they have rarely squared off against one another in such uncertain and unpredictable circumstances.

Agreement is possible rather than probable, and failure to strike a deal would result in a series of pay claims and – most likely – industrial disputes across the public sector.

It is not yet clear whether the discussions will focus on a new agreement or an extension to the current deal. That runs until the end of this year, with a further 1 per cent increase for all public sector workers due in October.

The unions wrote to the Department of Public Expenditure a fortnight ago, triggering a clause in the existing agreement that allowed either side to reopen it if external circumstances changed dramatically. Initially this was inserted at the behest of the State side, seeking to cover itself in the event of a sudden deterioration in the public finances, but the unions insisted that it work both ways.

Either way the State side recognises and agrees with the union’s central contention: that the surge in inflation means the current deal must, in fairness, be revisited.

Increases

But that’s where agreement, for now, ends. The Minister for Public Expenditure, Michael McGrath, has told officials to meet with unions, inspect their asks, and report back.

It’s odds on they will. But whether agreement can be reached is anyone’s guess. Unions want a meaningful increases for their members, now facing an inflation rate running at a 20-year high.

The Government side acknowledges some response is necessary, but pooh-poohs the idea of inflation-matching pay increases. “Forget it,” says one high-ranking source.

Every 1 per cent on the public pay bill costs about €250 million; no Minister for Public Expenditure or Minister for Finance will sign up to a deal costing billions. They’ll take their chances with industrial disputes rather than that.

This week McGrath has signalled that he is interested in a deal – either an extension of the existing deal, perhaps superseding its autumn pay rise with something more substantial, or a new agreement.

But with inflation running rampant and the international environment unprecedentedly uncertain, McGrath favour a short-term deal perhaps for a year. Something to tide everyone over until things settle down.

"It's completely understandable that there would need to be some adjustments," says Sebastian Barnes, chairman of the Irish Fiscal Advisory Council, the Government's independent budgetary watchdog.

But he warns: “We don’t want to stimulate second round effects and prompt an inflationary wage spiral. We can’t just pay ourselves more because costs have gone up. The Government needs to strike a balance.”

Barnes says that the Government has some leeway to act because the public finances have recovered “really strongly” after Covid. He sees the case for temporary measures to deal with cost of living pressures, but counsels caution on permanent measures, such as wage increases.

Public finances

UCC economics lecturer Seamus Coffey agrees that the surge in inflation has piled pressure on the Government to act on wages. He agrees with Barnes that there is scope in the public finances to agree a new deal – "it's a pretty reasonable request," he says.

But he worries that recurring spending commitments will be built on current strong corporation tax revenues that may not last into the future. “Can we rely on [corporation tax]? We just don’t know.”

However, he also points out that inflation also pushes up tax receipts, helping pay for any new deal.

Both union and Government sides talk up the desirability of a deal – but also the difficulty in achieving it. Union meetings are calling for pay rises to match inflation – a goal that authoritative Government sources flatly say is unachievable.

More realistically, sources involved in the process bat around questions like: could the State afford 3-4 per cent in a one-year deal? And would the unions be able sell that to their membership? The answer to neither question is clear.

The negotiations will reopen, as they always do, the fissures between the public and private sectors. Private sector workers in successful companies, with well-paid jobs, or those whose employers have either offered or signalled inflation-tackling pay agreements (Bank of Ireland has just offered 7.5 per cent over two years, for example) might not pay much attention.

But those in struggling companies, in small and medium enterprises, the self-employed small businesspeople and those in the battered service and hospitality industries, they will wonder why their taxes are being used to stretch the already hefty public sector premium that their counterparts who are employed by the State enjoy.

Though there is much political focus on the high salaries paid to some officials in the public sector, the principal difference between public and private is that there is a much greater range of salaries in the private sector – there are more high earners, and more low earners. In the public sector those at the very top earn less, and those at the bottom earn more

Rates of pay

When it comes to average rates of pay it’s a fact of life that public sector workers are better paid than their private sector counterparts even before their guaranteed pension – unavailable to almost all workers in the private sector – and job security is taken into account.

Unions say that the State should be a “good employer”, which pays its workers well and treats them fairly. The State is also, by definition, a large enterprise, and larger employers tend to pay better, on average. Studies also show that there is a pay premium for workforces that are represented by trade unions, and the public sector is almost entirely unionised. The public sector unions, of course, are one of the strongest political lobbies in the country.

Within the public sector CSO numbers suggest that gardai are the best paid workers on average, earning over €1,300 a week. The next best paid are workers in education, earning on average over €1,000 a week. Education workers are the best paid in the entire economy when judged by hourly rates, the CSO says, earning €38.50 an hour in the last quarter of 2021.

Of course many teachers work outside their allocated hours, both preparing lessons and doing voluntary activities such as school sports and other after-school activities. The long school holidays also skew the teachers’ hourly rates a bit – then again during the long school holidays, the teachers are, well, on holidays.

The arguments about public and private sectors are perennial, with both sides claiming that all they want is fairness. That concept means different things to different people, though, and will be of limited use in the horsetrading to come. Both sides believe that a deal is in everyone’s interests – but only if done on terms acceptable to them.