Can the comfortable classes in the public sector make the case for a better pay deal?

The headlines have not fallen in the Government’s favour as it seeks to negotiate a pay deal with public servants. Since the start of January, there have been figures showing that 2023 was a strong year for the public finances, forecasts of another significant budget surplus this year and an OECD report saying Ireland would be one of the big winners from the new minimum 15 per cent corporation tax rate. This week Microsoft and Apple, two of Ireland’s biggest taxpayers, were tussling on the New York stock market to be the world’s most valuable company. Interest rates are falling, meanwhile, so the State can raise new borrowings at a reasonable rate.

Then consider the political backdrop. Governments never want to see public sector industrial disruption – just watch what happens in Northern Ireland this Thursday for a taster. But with a general election looming into view, now would be a particularly bad time politically. And finally there are the labour shortages that continue to hit businesses across the economy, despite some signs of a slowdown in the employment market. If the public sector cannot compete for teachers, doctors, nurses, planners and so on, then vital services will suffer. The Government negotiators cannot, in other words, try to put on the poor mouth. There could hardly be a worse time for Paschal Donohoe and his troops to try to do a pay deal with the public sector.

Against this backdrop, you would have to reckon that a lot that went on this week was performative, on both sides, part of the dance that seems to precede any agreement. With the Government offering 8.5 per cent over 2½ years and the unions seeking 12.5 per cent, there is a deal to be done around 10 per cent. That would seem roughly in line with deals in big private sector companies that seem to be coming in around 3.75 per cent to 4 per cent for this year. It would be in advance of expected inflation, that is expected to run at just under 3 cent this year, even if the unions complain that the increases in 2024 alone would be too low, with the initial offer proposing that the bigger increases would follow in 2025 and early 2026.

It doesn’t seem in either side’s interest to let the talks fail, even if one more “breakdown” could happen before a deal is finally done. But Donohoe, the public spending minister, is clearly trying to lower expectations and keep a lid on this, albeit probably at a level a bit higher than his original offer. And he is right. The trade unions need to accept that while some of the ground lost in terms of living standards via the inflationary surge can be made back gradually, there is no case for trying to compensate for all the losses.

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Pretty much all of us are a bit worse off because of the surge in inflation sparked by post-Covid blockages and then surging energy prices and while this pain will ease, the State cannot fully compensate everybody. Not that you would think it, of course, with the Government filling the budget stocking with more universal energy credits and mortgage interest relief and the Opposition baying for yet more. The surge in taxes has created a mood that pretty much anything can be afforded. And so forecasts of more corporate tax billions in the years ahead means the price of industrial peace in the public sector rises a bit further.

The OECD forecast that countries such as Ireland will be among the bigger initial gainers from the 15 per cent tax rate is probably correct, based on the simple fact that these companies declare a lot of profits here and the tax rate on that is going to go up a bit. But this will also drive the bigger countries to try to push forward with the other part of the OECD deal that proposes to reallocate where some profits are taxed away from countries such as Ireland, thus costing the exchequer. Trying to agree this at an international level is proving difficult, but if this does not happen the big countries are likely to go ahead unilaterally. In turn this could spark tensions with the US, where the firms most affected by this are located.

These dangers have been around for a few years. As has Ireland’s extraordinary reliance on two or three big companies for tax revenues. But, if anything, the risks are rising. In the past, the Government of the day might have pored over GDP forecasts to work out how much it could afford in the next public sector pay deal. Now it would be better looking at the profit forecasts for Microsoft and Apple and mulling how the tax structures used by these companies might evolve.

A large part of being in Government in Ireland now is working out how best to spend the dividend from the multinational sector for the wider benefit – and wondering how long it will last. Public servants deserve their fair share via higher pay. Up to a point. But cash needs to go, too, to expanding the size of the public sector to match the higher population – money is needed for staff, in other words, as well as higher pay. And to investing more to meet the vital infrastructural needs of the economy.

[ Cliff Taylor: What is behind the sharp rise in Ireland’s population to almost 5.3m? ]

This needs to be conducted on the basis that we hope the multinational dividend will be maintained – but not that we expect it will. Purely on the basis of the law of averages, having seen so many chips fall in our favour on this one since 2015, we are probably due a couple of setbacks over the next couple of years. With the domestic economy slowing, international nervousness and geopolitical risks aplenty, State money needs to be spent carefully.

If it all goes on compensating public servants and households generally for the inflationary losses of the last few years, then the enormously valuable and potentially transient dividend will be wasted. The lower-paid and the vulnerable need a dig out, for sure. But not the comfortable classes in the public or private sectors.