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Scandal over public service pensions continues as IMF calls time on state workers

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Taoiseach Enda Kenny and Tanaiste Eamon Gilmore. 

Over the past two weeks this column has been dealing with the scandal of state pay and pensions in Ireland.  I thought I was a voice crying in the wilderness for a while, but this weekend the issue
became the top story here and the IMF waded into the argument.

It's easy to summarize the problem.  Close to 20 percent of the national workforce here are on the state payroll, and their pay and pensions have been protected from the economic collapse during the past few years while pay and pensions for everyone else have been severely affected.

In the private sector (the businesses that make up the real economy) pay has been cut, hours are longer and any extras have been eliminated as companies across the country relentlessly cut costs in an attempt to survive the financial crisis.

Fearful of joining the almost half million out of work, employees take the deep cuts to hang on to their jobs.
To add to the misery in the private sector, the pension funds run by most companies for their staff are now on the brink of collapse.  Although the workers have been paying into the funds over the years, the investments have been decimated on the stock markets and the funds now can't pay the pensions.  

As I explained here two weeks ago, many of these pension funds will only be able to pay out a fraction of the pensions they were committed to providing.

For the workers in the state sector however -- including the teachers, police, nurses, soldiers, diplomats, politicians, college lecturers and the vast army of administrators who work in government
departments and semi-state quango organizations funded by the taxpayer -- pay and pensions are virtually untouched.  For them, as I said here last week, the boom never ended.

How come?  The state is bust, after all.  We are borrowing close to € 1 billion every month to pay the state workers their boom time level pay and pensions.

We go on doing so because the government is afraid of the unions in the state sector who threaten chaos if they have cuts imposed on them.   Around 80 percent of the people who are on the state payroll are in unions, which compares with about 20 percent of the rest of the workforce.

The state sector is the last bastion of union power in Ireland, and even though the state worker unions know the privileged position they are defending would make James Connolly spin in his grave, they go on holding the rest of the workforce in the country to ransom out of sheer greed.

A key player in this dirty game is the Labor Party, which is heavily dependent on the state unions and therefore seriously compromised in its role as part of the coalition government.    It is defending the Croke Park Agreement (CPA), the deal reached by the last government with the unions which guarantees no pay cuts for state workers between 2010 and 2014 in return for a no strike guarantee and increased efficiency in public services to cut costs.

As I pointed out here last week, the situation has led to sharply divergent views among ministers in the government, even Labor ministers.  Brendan Howlin, the Labor minister in charge of managing overall state spending, is claiming that the CPA is doing what it promised to do -- delivering change to make public services more cost efficient.   Numbers of state workers are being reduced and workers are being moved around to fill gaps.

An example would be the transfer of state workers from other areas into welfare offices to deal with the high number of unemployed people.  This kind of flexibility which is normal in the private sector is seen as a big concession in the state sector.

Instead of cutting pay and pensions to match the cuts in the private sector, the number of state sector workers is being gradually reduced to produce an overall saving in the state payroll bill.  But there is a limit to how far this can go without damaging state services to the public.

A far better way would be to maintain the number of state workers to keep up services but cut their pay and pensions.  But this is ruled out under the CPA.

Two of the biggest spending departments are health and education.   Last week in this column I was talking about a €150 million emergency cut in spending the minister for health was bringing in to reduce the €500 million overrun he is heading for by the end of the year and which the IMF has ordered us to correct without delay.  

Part of that was a cut to funding for personal assistants for seriously disabled people, which led to an all-night protest by the disabled outside the Dail (Parliament).  It was always going to be an emotive issue.

The minister caved in and the saving is now to be spread across other health areas like administration and transport.   But one can understand why the minister was taking such drastic action.

Because 80 percent of health spending goes on pay and pensions in the sector and that cannot be touched under the CPA, making savings in health spending has to mean cutbacks in frontline services.   Even for the disabled. No one in the unions mentioned that the savings required could easily be made in pay and pensions for health workers.  

And health workers, like most state employees, are actually getting an increase in pay this year.    

Education is also interesting because it is another department where over 80 percent of its huge budget goes on pay and pensions for teachers.  There has been an ongoing row about special needs assistants (SNAs), teacher's aides in classrooms who help with children who may have a mild handicap or difficulty.

Their number has been cut, which led to an outcry by parents and teachers.  Yet no one mentioned the elephant in the room -- a cut in teacher pay (teachers in Ireland are among the highest paid in Europe) could have delivered the saving needed to keep on the SNAs.

Another aspect of what is going on is also seen in education.  The CPA protects pay for existing state workers, but not new entrants in various areas.  

Recent figures show that new schoolteachers here are now being paid €11,000 less than new teachers in 2010 (starting salary of €27,000, down from €38,000).  

This is very tough on the young teachers starting their careers and the unions have been making noise about it.   But they are silent on the fact that most teachers (the older ones who have been teaching at least a few years) have their high pay completely protected by the CPA.

This is happening in other areas of the state sector as well.   The majority of state workers are protected by the CPA, and the unions ignore the plight of their younger colleagues rather than spread the impact of the needed cuts.

This is what the state sector unions here have become -- a protective clique safeguarding the pay and pensions of their existing members, the majority of whom are older and very comfortable.

This does not stop them lecturing the EU/IMF, the government and even the Irish public about how reducing our budget deficit must be made in a way that takes account of "the need to protect the vulnerable in Irish society."   The hypocrisy involved is nauseating, particularly on the part of the senior Labor Party people and the union leaders.

The furor caused a week ago by the minister for health's attempts to shave just €150 million off his €13 billion health spending this year is an indication of the scale of the problem facing the government.  If they can't save €150 million how are they going to find the €3,500 million they have to save in the budget in December, between spending cuts and tax hikes?

There is a very simple solution, of course.  I suggested it here two weeks ago.  

They should assess the effect of the crisis over the past four or five years on pay, and particularly on pensions across the private sector in Ireland by doing a survey of the top 100 companies.   Apply the same percentage reductions in pay and pensions across the state sector.

This would save several billion a year and would mean that the €3.5 billion in budget adjustment needed in the December budget for 2013 could be accomplished with far less pain for the ordinary citizen.

Matching state sector pay and pensions to the private sector averages would have an ongoing effect in the coming few years, especially in pensions.  This would help to close our budget gap much faster.  

Doing this would also mean leveling the pay and pensions playing field so that everyone here, private and state sector workers, would be sharing in the cutbacks that have to be made.  Apart from anything else, that would be fair to everyone.  

It would also prevent the seething anger that will emerge here if €3.5 billion in cuts are imposed in the December budget but pay and pensions in the state sector remain untouched.  

It would mean dumping the CPA immediately, but there is a sound justification for doing so.  Every national wage agreement here in the past included an "inability to pay" clause so that individual companies who were in trouble could avoid paying increases by showing their accounts to the unions.   The CPA has a similar clause in it, and since the Irish state is bankrupt the government certainly qualifies as an employer who is unable to pay.  

This would also mean an end to the farcical system of annual increments (pay hikes) which all state workers get.   As I said here last week, this means that state workers are getting an increase in pay this year while workers in the private sector face ongoing cuts.

Both the EU and the IMF have indicated that they want the government to do something about the CPA now because we can't afford to wait until it runs out in 2014.   Instead of confronting the unions and hauling them into the real world, however, Taoiseach (Prime Minister) Enda Kenny and Tanaiste (Deputy Leader) Eamon Gilmore both stated over the weekend that the CPA must be allowed to run its course.  

But what would you expect?  They're on the state payroll as well.  

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