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News : Irish Economy Last Updated: Jun 14, 2012 - 7:35 AM


Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement
By Michael Hennigan, Finfacts founder and editor
Jun 13, 2012 - 4:40 PM

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Irish Economy 2012: The Minister for Public Expenditure and Reform, Brendan Howlin TD, today welcomed the publication by the Implementation Body for the Public Service Agreement 2010-2014 (‘Croke Park Agreement’) of its Second Annual Progress Report. He claims that €1.5bn in pay and 'administrative efficiency' savings have been achieved in the past two years. However, these savings are a sham.

This report is a sham because of the focus on pay rather than both pay and pensions and the benchmark year selected.

There would be no savings on the pay and pensions bill by 2015 if 2006 -- the peak year of the boom was the benchmark year.   

The report of activities by Ireland's biggest employer has a long list of 'achievements'  --  not difficult in itself to produce a laundry list involving the activities of 290,000 people.

  • Efficiencies realised from the closure of barracks: €1.3m;
  • Prison Service canteen facilities: €1.4m;
  • Changes in work practices and value for money initiatives in the Naval Service: €2m;
  • Non pay gains in the Garda Síochána: €24m;
  • Central Mental Hospital roster changes: €1m.

.. and on the list goes on all 'savings' on exorbitant levels.

Big issues are not addressed and this list of 'savings' should not be seen as the result of radical change in structures but a reality of a staff embargo and a limit from the reckless spending levels of the boom period.

How can a civil servant in a bankrupt state retire at the age of 57 with a lump sum payment of €428,011, a special top-up of €142,670 (for senior civil servants who retire early) and an annual pension of €142,670?

The Comptroller & Auditor General said in 2009 that the average number of sick days taken in 2007 by each Clerical Officer was 16 days.

Last year, research published by the German Macroeconomic Policy Institute (IMK) shows that  in 2010, the average hourly labour costs (including social security costs paid by private sector employers) were €28 for the Irish private sector and €34 for the Irish public sector.

The rates for Germany were €29 per hour in both sectors; Finland's rate was also €29 in both sectors and the UK was €20 per hour in the private sector and €21 per hour in the public sector.

So the Irish public sector had a premium of 21% before accounting for the benefits of the special pension scheme.

'The National Strategy for Higher Education to 2030' report which was published in January 2011 stated: "Salaries account for three-quarters of total current expenditure on higher education in Ireland – compared with an international average of two-thirds. This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries."

Last April, the Department of Finance said that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008.

Howlin's magic 'savings'

The Minster for Public Expenditure and Reform apologised to a sympathetic Dáil audience last March for even bringing up the issue of  public sector pay. He suggested that the paybill (excluding 30,000 local authority workers) would be cut by €3.5bn (including the €1.5bn related to 2009 pay cuts and a special pensions levy)  by 2015 from the 2008 level . 

"It is perhaps easy to become jaded in our discussion of Public Services pay costs," the minister said in a statement.

There are a lot citizens who could feel 'jaded' about besides pay.

In contrast with his colleague Joan Burton who has highlighted the increase in welfare from €8bn to €21bn from 2011, Howlin chooses 2008 as his benchmark years and produces smoke about the 1970s as the reason for €1bn rise in the cost of public pensions.

His figure for 2009 pay of €17.5bn is before the deduction of the 2009 pay cut and special pensions levy (offset against pay rather than the cash cost of pensions) amounting to about  €1.5bn, which was proposed by the late Brian Lenihan, minister of finance, in the Budget of October 2008.

Detailed data on pay and pensions is published annually by the Departments of Finance/Public Expenditure and Reform, excluding local authorities.

In 2001 the Exchequer net pay and pensions bill (ex local authorities) was €10.2bn; it was  €16.2bn in 2006; €18.7 in 2008 and estimated to be €17.1bn in 2011 - -  an increase of 5.6% since 2006 and 67.6% since 2001.

Pay is down 0.3% since 2006 and pensions are up 67%.

The net cash cost of pensions (after an employee's normal deductions) was €876m in 2001; €1.4bn in 2006; €2.0bn in 2009 and €2.3bn in 2011.

A cut of €3.5bn from the 2008 pay bill would leave €13.6bn. Howlin expects pensions to increase by €1bn and adding to net pensions of €1.7bn in 2008, gives a total of €2.7bn in 2015 - -  up from  €2.3bn in 2011. This would give a total pay and pensions bill of €16.3bn for 2015 compared (excluding local authorities) with the 2006 level of €16.2bn.

However, annual pension cost increases in 2010-2015 are likely to be higher than €100m annually.

From 2008, the annual increases have been: €140m; €191m and €192m.

So, the minister's claims compared with the peak year of the bubble show that there is nothing to brag about.

The minister said today: “I welcome the findings of the Implementation Body that almost €900 million of sustainable pay and non-pay savings have been successfully delivered in the second year of the Croke Park Agreement. This means the Agreement has achieved almost €1.5bn in pay and on pay savings in its first two years. We should not lose sight of the fact that the Croke Park Agreement has enabled these savings to be delivered in a climate of industrial peace across the public service."

“€1.5bn of recurring savings is a substantial contribution by public servants, who have also suffered an average 14% pay cut since 2009. Today’s report shows we’re ahead of Government and troika targets on public sector staffing and payroll savings," said Impact trade union general secretary Shay Cody.

IBEC, the main business lobby group, said it was important to recognise that, due to the numbers taking early retirement, a significant proportion of payroll savings would be off-set by increased pension costs. The focus of attention should be on savings to the combined pay and pensions bill, not just the pay bill. 

IBEC director Brendan McGinty said: "The need for significant additional reforms and savings remains. Important progress has been made, but much more needs to be done. A number of issues still need to be addressed, including the payment of increments, reform of the allowances system and an overhaul of outdated sick leave policies. A more progressive approach to performance management is also needed. 

"Another €3bn adjustment in Budget 2013 is required and the bulk of this should come from reducing expenditure, not raising taxes. The pace of change needs to increase and further changes to public sector pay and pensions should not be ruled out. 

"Budget constraints and fewer staff numbers make it difficult to maintain the quality of service, but this can be overcome if more use is made of the skills and experience available in the private sector. Major additional savings can be made through the public procurement process, and by making better use of out-sourcing and shared services." 

Report [pdf]

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