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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

IBEC Director General says pay deal which chases inflation would be bad for Ireland
By Finfacts Team
Apr 14, 2008 - 2:20:30 PM

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Turlough O' Sullivan, Director General, IBEC and David Begg, General Secretary, ICTU.

IBEC Director General Turlough O’Sullivan said today said that a pay deal which chases inflation would be bad for Ireland, and put more jobs at risk at a time when the Irish economy is facing its biggest economic challenge in twenty years. Irish pay rates have been growing at twice the pace of those in other euro area countries. This cannot continue he said.

O'Sullivan said: "We now need leadership from Social Partnership. We have to be strategic and do what is right for the country, for enterprise, for jobs and to make sure that we regain our lost competitiveness. The only way to maintain jobs is by controlling costs, moderating pay growth to low single figures, maintaining labour market flexibility, embracing change, driving public sector reform, delivering productivity, improving R&D performance, effective capital investment in infrastructure, training/education and upskilling and adding value to what we produce.

"The increase in inflation in March is a reflection of persistent international price pressures which are outside our control. The harmonised index of inflation at 3.7% is broadly in line with the average across Europe. Record global prices for food commodities and energy are causing inflationary difficulties throughout the world and unfortunately Ireland is not immune to these pressures.

"It is not sustainable to suggest that pay should chase inflation. Inflation is a problem for all of us, consumers and business alike. Business cannot seek an automatic inflation adjustment in the marketplace. No sensible person would suggest that the more difficult it becomes for Irish companies to do business, the more we should push up costs and further damage our ability to trade and to protect jobs.

"We export 85% of everything we produce in goods and services. With consumer spending, construction activity and net export growth slowing in 2008, we cannot further undermine our ability to trade successfully with the outside world. Irish exporters are already suffering the effects of the strength of the Euro against both the Dollar and Sterling. Pay is one of the few economic factors that we have within our own direct control."

O'Sullivan said that all parties need to be conscious of the realities:

"Pay rates have been growing at twice the pace of those in other euro area countries. Over the last 27 months, the current agreement, Towards 2016, provided for cumulative pay rises of 10.4% while pay growth in the euro area has been 6.6% and the harmonised index of consumer prices also rose by 6.6%.




With the Government’s associated tax concessions, average pay has increased by 14.4% over the 27 months (excluding mortgage interest relief changes).

As a result of high nominal wages and the lowest effective tax rate in the OECD, Irish workers benefit from the second highest level of take-home pay in the EU. Average earnings in 2007 were €45,000 p.a., ie. 17% above the euro area average.

Over 27,000 manufacturing jobs have been lost in the six years to 2006 and already this year, close on 1300 redundancies are being declared every week.

"Those calling for high pay increases also ignore the fact that Irish aggregate productivity growth has been below the OECD average over the last 4 years. Every one of us has an interest in Ireland succeeding as a trading nation. We have lost ground in recent years. It is time for us to be strategic about our future," O'Sullivan concluded.

The average industrial wage is €32,000 and 900,000 workers - a majority in the private sector - have no occupational pensions.

As usual, there is a problem when pay restraint is called for. A different rule appears to apply to the Insiders and last year when high pay increases were proposed for the elite of the public service, including politicians, IBEC's Director of Policy Danny McCoy did not appear to have a problem with it, when asked about it in a radio interview.

Direct taxes are low in Ireland but private health insurance has to be bought in Ireland at a cost in the general range of €2000-€3,000 annually because of the poor standard of the public health service. The average cost of a new car in Ireland is 30% above the Eurozone average because of high taxes.

In November 2004 the Minster for Finance Brian Cowen said that 28% of the average cost of a new Irish house is paid in taxes and public charges - about €100,000 a pop!

Last October, Ministers got pay increases up to 15%; the Dublin Manager and retirees got a 36% hike and the Secretary of the Department of the Taoiseach got a 25% rise.

TDs have got pay hikes of 120% since 1997 - double the rate of increase of the industrial wage.

IBEC also played a weak hand in the partnership process and there has been no significant public service reform as it expanded in the Celtic Tiger years, while opening areas of the private service sector to competition, has proceeded at glacial pace. Yes indeed, Ireland needs pay restraint but within the past year, the expansion of the ministerial payroll to 35 in a country of 4.2 million and the provision of 99 paid positions in Oireachtas committees in a country where it's rare that politicians or senior public servants, accept responsibility, is an example of the unfairness of the current system.

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