The partnership deal between unions and employers will come at a cost to the Exchequer, but could provide some stability at a time of economic uncertainty, writes Cliff Taylor, Economics Editor
Partnership looks to have been saved - but at a price. There is much that is welcome in the proposed terms of the new deal from an economic viewpoint: it should help to maintain industrial peace, the basic increases should not be inflationary and it provides some stability in a time of considerable economic uncertainty.
The price tag, however, does not qualify as a January sale bargain. It comes for the Exchequer in the €1.1 billion cost of implementing the benchmarking increases for public servants, which are a central part of the proposed agreement. The Government has agreed to pay the benchmarking awards in three phases "subject to final agreement on a modernisation programme for the public service".
Thus public-sector workers will receive much more generous increases from the deal than their private-sector counterparts, if the deal is finally agreed by both sides.
The benchmarking report, published last year, recommended increases averaging 8.9 per cent for public servants, which the authors said was justified on the basis of studying comparable jobs in the private sector.
When added to the 7 per cent basic increase proposed in the new agreement, this means public servants will receive an average rise of 16 per cent under the terms of the new deal, although they will not receive the final element until mid-2005.
In contrast, private-sector workers in companies which stick rigidly to the terms of the deal will receive 7 per cent over the the 18 months. Neither has the Government been able to afford to promise to top up take-home pay through tax cuts, a central element of all previous national deals.
As the trade union movement is dominated by public-sector unions, the delivery of benchmarking - once likened by ICTU president Senator Joe O'Toole to "an ATM machine" - will be a powerful factor pushing them to accept the deal. However for the Exchequer finances, it will come at a cost - public sector pay is set to rise by 11 per cent this year and by a further 6.7 per cent next year.
In an era of budgetary tightness, this will restrict the room for other measures in the 2004 Budget, just as it did in this year's package. What will be left for measures to attack poverty and disadvantage in the 2004 Budget, for example?
There are two key factors about benchmarking. First, the report provided no detail whatsoever about the job comparisons between the public and private sectors used to calculate the recommended increases, which ranged from as low as 2.5 per cent to as high as 25 per cent, averaging 8.9 per cent.
GIVEN the extent of the bill being imposed on the taxpayer, this lack of transparency is extraordinary - it leaves unanswered legitimate questions about the rationale for the increases and has left those public servants who are to receive lower increases disgruntled. University teachers - who are to get just 3 per cent - have taken the matter to court.
The second key benchmarking issue is that the increases were meant to be delivered on the basis of significant changes in work practices in the public sector. The Government statement on the latest talks said the payment is subject to the final agreement on modernisation talks now under way between unions and the Government. However the detail of these talks remains unclear.
The concern is that the benchmarking awards - now surely irrevocably promised - will be made on the basis of nominal concessions in terms of productivity. Given the extent of the increases, the Government as employer must look for significant flexibility and increased productivity so that the cost is reflected in genuine improvement in our public services.
Put bluntly, if - for example - teachers are to get the 13 per cent increase recommended under the report, then the first requirement is that no more be heard of ASTI's complaints on the supervision and substitution deal. And, like other professionals, teachers must be prepared to grant a range of meaningful changes in the way they work in return for being "benchmarked" to the private sector.
Better pay for public servants must translate into better services for the public. It remains to be seen whether the Government can deliver on this - but putting dates on the payments before negotiating the modernisation programme does not appear to leave it in a strong negotiating position with its employees.
IN TERMS of private sector employers, the deal should not undermine competitiveness. However nor will it boost industry's competitive position, which has been somewhat eroded over the past couple of years.
About 25-30 per cent of companies are unionised, but many of the rest tend to take their lead from the figures negotiated in national agreements.
For this year, the average payroll increase will come in at 3.5 per cent - roughly in line with our major trading partners. The total of 7 per cent over 18 months may still be a bit ahead of the international norm, though not by a enormous amount.
However the formula of the early national agreements - low nominal wage increases to boost competitiveness backed up by significant income tax concessions - is no longer possible because of pressure on the Exchequer.
What is important this time is that companies who genuinely cannot afford to pay the 7 per cent due to competitive pressures are able to pay lesser increases - or none at all. Many firms ended up paying more than the terms of the previous deal - the Programme for Prosperity and Fairness - and some businesses will be looking for flexibility on the downside this time around.
There is already evidence that some multinational employers have frozen pay increases over the past year.
In the year ahead, the more profitable employers, such as most of the big financial organisations, will have no difficulty paying the increases. However for smaller indigenous companies already facing competitive pressures in Britain and US markets due to the rise in value of the euro, it may be a different story.
As Prof John FitzGerald of the Economic and Social Research Institute pointed out yesterday, a further sharp rise in the value of the euro is a significant competitive threat facing the economy and could yet leave many firms unable to pay.
That said, the deal does not tie down increases for a lengthy period and it is clear that all sides will hope to sit down in a more certain economic environment towards the end of next year to negotiate a successor. The Government will hope that it adds an element of stability in an otherwise potentially volatile year, when the threat of war in Iraq has contributed to deep uncertainty about the outlook for the world economy.