The Coalition Government, employers and trade unions were, late last night, still deeply engaged in an attempt to negotiate the terms of a new National Agreement, designed to underpin industrial peace and economic growth, while providing for social advancement, over the next three years. It is a difficult task in a climate adversely affected by the Budget and by revelations concerning widespread tax evasion in relation to DIRT. Some details of the package being discussed will be a source of concern to the financial sector because of their inflationary potential.
Already, this State comfortably tops the inflation league within the EU, with inflation standing at 3.4 per cent, the highest for six years. In addition, a potential house prices bubble has been growing for some time. In these circumstances, wage increases averaging about 5 per cent per year are extremely high and may add to the inflationary trend. The introduction of a national minimum wage, childcare provisions and tax concessions on income and profit sharing arrangements are also likely to contribute to a general loss of competitiveness.
Some economists, including Professor Brendan Walsh, have argued that paying employees higher wages is a valid mechanism for slowing economic growth in a gradual fashion. And there is no doubt the economy is expanding at an unsustainable rate. Last week, stockbrokers ABN Amro predicted that growth will touch 9 per cent this year, having exceeded 10 per cent last year. Given that unemployment has already fallen to 5 per cent and job shortages have developed in a number of sectors, the desirability of such rapid growth at a time when the physical infrastructure of the country is unable to cope, is questionable. It would, in itself, generate strong upward pressure on wage levels in key sectors.
A national agreement is more than a wage deal. The social consensus involved represents a significant alternative to British-style confrontation between individual unions and managements. Some employers and businesses have made large profits arising from Government corporation tax changes and the wage restraint of workers. Certain categories of employees have also done very well. And there has been a consistent rise in the general standard of living. In the past few years, however, growing militancy has manifested itself amongst some public sector workers, with nurses, the Garda, prison officers and teachers appearing to regard the social contract as a platform from which to make further wage advances. Should such behaviour persist, it would eventually destroy the basis for such agreements.
When negotiations opened before Christmas, the general secretary of the Irish Congress of Trade Unions, Mr Peter Cassells, insisted that prosperity must be shared more fairly and the Budget surplus used to improve living standards and invest in services for vulnerable groups such as the elderly, people with disabilities and the homeless. If the Budget failed adequately to adequately address some of those these areas, the terms of the social contract now being negotiated goes some way towards making amends. The package has obvious flaws and, even if agreement is reached, it will have to be endorsed by the employer and trade union organisations and other social partners. Given the contribution such social contracts have made towards transforming and enriching Irish society over the past twelve years, however, a new national agreement would be a desirable outcome.