As talks on a national economic recovery plan continue, another deadline looms

DISCUSSIONS BETWEEN Government, trade unions and employers about a national economic recovery plan continue to rumble on.

These talks seem to have been going on forever and to have breached a number of deadlines already – and another deadline looms. This one is next Wednesday, by which Ictu insists it must have something concrete on paper to take to its annual conference in July.

You can depend on it that the lights will be burning late in Government Buildings in the meantime, but there is greater- than-usual uncertainty about whether a deal will emerge from these marathon sessions.

A great many thorny issues are at play, among them how the Government might safeguard the pension entitlements of private sector employees in defined benefit schemes (with particular reference to the SR Technics case) and protect from repossession people who fall into arrears with their mortgages.

A proposal that has achieved a fair amount of traction is the Ictu/ Ibec one – that the Government introduce a major job subsidy scheme at a cost of €1 billion. This has elicited some sympathy from the official side.

It is worth saying in passing that economists generally are highly sceptical about the efficiency and effectiveness of such schemes (Karl Whelan wrote a cogent critique on the issue in this column last week).

They are most likely to be worthwhile when they are carefully targeted, an attribute that a €1 billion price-tag does not seem consistent with.

For all that these matters are interesting and important, I suspect that the real action in the talks will revolve around issues that are of primary or exclusive relevance to the public sector.

As I understand it, the position here is as follows.

The public service unions are looking to the Government for guarantees that their members’ basic pay and pensions will not be reduced in the future, and that the tax-free status of retirement lump sums will remain in force.

The Government is seeking union agreement on a reform agenda that, if the Taoiseach’s rhetoric is anything to go by, has the potential to be transformational in its effect.

On the face of it, there is the makings of a deal here: the unions trade their right to oppose far- reaching changes in the way the public service does its business for a guarantee that basic wage rates and pensions will be ring-fenced in the painful rounds of fiscal adjustment that lie ahead.

Actually, I don’t think that’s the way it is at all. For one thing, I think the union stance on reform is a hollow bargaining chip.

Let me explain.

Faced with the kind of budgetary constraints and payroll cuts now in force across the public sector (with plenty more in prospect ahead), reform has moved from being a desideratum to being an imperative, if service quality and continuity are not to be severely compromised.

Examples of the kind of reforms that are needed have been canvassed extensively in the media in recent weeks.

They include the ability to transfer staff from State agencies to the Civil Service, the abolition of privilege days, designation of 8am to 8pm as the span of normal hours of work in the health service, and so on.

If the public sector trade unions withhold support for the necessary reforms and, a fortiori, if they vent their opposition through industrial action, there is likely to be extensive disruption of service, if not outright chaos.

This is a recipe for alienating the broad mass of taxpayers and for driving the wedge between private and public sectors ever deeper. In this sort of campaign, the public sector trade unions might win some skirmishes, but they would almost assuredly lose the war.

So, walking away from the reform agenda is not an option for union leaders, except perhaps for the most myopic of them.

The broader point here, which I have articulated several times before in this column, is that those who are advocates for the public service should be the most enthusiastic champions of reforms that enhance its effectiveness and efficiency. This is especially true in times of acute fiscal stress.

The more enlightened trade union leaders understand this very well. Eamon Gilmore does too. His recent speech to an Impact conference suggested that a government that includes him will be not be tolerant of union recalcitrance on the reform agenda. This, of course, strengthens the Government’s hand in negotiations.

What about the guarantee on pay and pensions that the unions are seeking? Well, as I see it, it would be a rash and foolish government that would offer such a guarantee at this time.

It is possible that Ireland’s severe fiscal crisis will be resolved without cutting public sector basic rates of pay and pensions if the economic environment develops as expected over the next few years, albeit at a cost in terms of cuts in the social welfare budget, cuts in capital spending and/or increases in tax greater than would otherwise be necessary – a cost that a great many people may not regard as acceptable.

Moreover, the economic and financial background may pan out along worse-than-expected lines: economic activity may remain depressed and/or borrowing costs may remain higher for longer than is commonly supposed, with obvious implications for the scale of fiscal adjustment required.

Faced with such risks, the last thing a government should be contemplating is handcuffing itself on pay and pensions.

jim.oleary@nuim.ie