BUSINESS OPINION:Unions are fantasising if they think they can avoid serious compromises, writes ARTHUR BEESLEY
WELCOME AS they are, tentative signs of recovery in Germany and France serve to amplify the scale of the gruelling task ahead at home.
In advance of a difficult estimates process and an unpalatable report from the Commission on Taxation, any sense that a slight improvement in consumer spending heralds imminent stabilisation is misplaced.
The main social partners will be presented in the coming weeks with opportunities to facilitate recovery or disrupt progress. If a daunting increase in fiscal pain is unavoidable, a level of candour not yet heard from some of the protagonists would help.
This is particularly so in the case of trade unions. Honest concern for hard-pressed workers and the unemployed is one thing. But ritualistic denunciations of Colm McCarthy’s report, not to mention strike threats, are at odds with the fact that the trade-union movement had a central role, through a succession of partnership deals and the benchmarking folly, in the formulation of the very policies that brought us to this sorry place.
Unions made huge gains on the way up and many of their members became increasingly prosperous as employment grew, pay rose and income tax fell.
These were more than spin-off benefits from the boom. Keen beneficiaries of the unsustainable expansion of the public sector, unions even secured tax relief for their members’ subscriptions.
There is no partnership deal at present and little prospect of one, so opportunistic bombast is inevitable. Yet the unions, for all their rhetoric, continue to enjoy unparalleled access to the top echelon of Government and are deeply embedded in the power structures of society. Senior union officials, for example, hold non-executive board positions in important State institutions, among them the Central Bank.
When partnership worked, fostering recovery after the 1980s and rapid growth in the 1990s and beyond, union leaders routinely recommended pay deals to their members. Given that the current troubles flow in part from those deals, which helped inflate the bubble, it behoves the trade-union movement to acknowledge this when crunch time comes in the budget.
Predictably, however, the McCarthy report was greeted with derision and threats from union leaders. Peter McLoone of Impact warned of “painful industrial action including strikes” if the Government imposed compulsory redundancies or cuts in pay and pensions. Blair Horan of the Civil and Public Services Union warned that outsourcing clerical processing was a “red line”.
Tom Geraghty of the Public Service Executive Union maintained the report strayed beyond its remit in making recommendations on pay and pensions cuts. Jack O’Connor of Siptu claimed the report was “entirely unworkable, unnecessary and downright counter-productive”. It was, he said, an “exercise in fantasy”.
O’Connor and the rest of the union leadership are themselves fantasising if they think there will be any solution to the current malaise without big Government cutbacks and serious compromise from the union brotherhood.
There is nothing pleasant in the McCarthy report. Every single page is littered with painful choices, many with potential to cause huge difficulty for unions.
Leaders will inevitably play to the members’ gallery but they are at the very least under a moral duty to recognise their own role in the debacle.
While it was never the case that the McCarthy report would be implemented in full, it still represents only a partial fix. For all the stark options, the “menu” comes with a total price tag of €5.5 billion. Contrast that with the €20 billion exchequer borrowing requirement set out in the supplementary budget last April. Add a €5 billion bond repayment into the mix and total borrowing this year comes in at €25 billion.
Even after €4.3 billion in spending cutbacks this year and €3.8 billion in tax increases, the full McCarthy package bridges but 20 per cent of the funding gap.
The current Government projection – and its projections have proven woefully fallible – is that additional annual “adjustments” of €4 billion will be required in 2010 and 2011. A further €3.5 billion will be needed in 2012 and €3 billion in 2013.
Achieving those adjustments will be fraught with difficulty and the attempt will be made in the full glare of the international markets on which we depend for borrowing.
Michael Somers, chief executive of the National Treasury Management Agency, declared last month that the Government had “turned the corner” in its efforts to convince global markets that its economic plan could stabilise the public finances. However, any deviation from the recovery course would be severely punished by the markets.
Unions might bear that in mind when the tough talking starts.
While a grave threat hangs over the State’s economic independence, little of what has been heard so far implies a willingness by unions to grasp the totality of the problem and explain it to their members.
None of this is to absolve acute incompetence on the part of the Government, which must bear ultimate responsibility for the mess, or Fianna Fáil’s sickening alliance with the property sector, which worsened matters. Nor does it forgive the role of business at large in the creation of the bubble. Just like the unions, they were willing members of Bertie Ahern’s partnership tent. Tax cuts, tax breaks, risky greed and easy profit: these were common features of a boom in which companies and banks milked the market for every last cent.
All of this should be borne in mind when the real fighting breaks out over the budget, McCarthy, the Commission on Taxation and the National Asset Management Agency (Nama). It is unlikely there will be any winners on the road to rectitude.
