A CAUSE THAT brings up to 120,000 people on to the streets in protest must send a chilling and deeply worrying message to the Government. Certainly, Saturday’s march through Dublin, organised by the Irish Congress of Trade Unions (Ictu), has done so. The marchers by their numbers and their banners have dramatically highlighted two major concerns: the effect of the economic downturn on workers in general, and the impact of the pension levy on public service workers in particular. Ictu’s general secretary, David Begg, best articulated the angry mood of marchers by claiming the burden of economic adjustment was being shared neither equally nor fairly.
Few could disagree. Undoubtedly, public service employees feel a sense of grievance at the imposition of the pension levy. For those 300,000 workers affected, this means an average pay cut of some 7.5 per cent. Nevertheless, to judge by the general response of those on Saturday’s march, many are ready and willing to make financial sacrifices to avert a potential national economic disaster.
The Government could have ordered things differently. It should have ordered things better. It can now alter the burden of the pension levy, without abandoning the principle or losing any overall revenue, by adjusting the income bands. And it should do so, by amending the legislation in the Dáil this week. The best way is to minimise the impact of the levy on those least able to bear it: by exempting the 22,000 public service workers who earn up to €25,000, and by recouping the lost revenue from State employees on higher incomes, who are better placed to pay.
Pension reform is necessary in the public sector. The pension contribution that public service workers make is too small for the highly generous benefits obtained. Public service pensions are mainly funded from general taxation, and largely by taxes from private-sector employees. The Minister for Finance has estimated that a new entrant to the civil service makes a 4.8 per cent contribution to a pension whose actuarial cost is 26 per cent.
The Government cannot back down on the pension levy, not only because of the domestic loss of face and authority. In international financial markets, the resulting loss in confidence in Ireland would make a difficult economic situation much worse. Last Friday, credit default swaps, a crude market measure of the likelihood of a country defaulting on its debt, rose to a new high in Ireland’s case.
Government is there to govern, which involves some hard choices. It means taking some very tough decisions without further delay. Tax increases and further spending cuts will be required, sooner not later. These are necessary to check the deterioration in the public finances. They are also needed to ensure the Government secures a better and more equitable balance in the sacrifices that are now required to meet the greatest economic challenge this country has faced since national independence.