NESC points way forward to new agreement

The Government is not short of advice on what economic policies to pursue, what with reports from the Economic and Social Research…

The Government is not short of advice on what economic policies to pursue, what with reports from the Economic and Social Research Institute, the International Monetary Fund and a variety of other commentators from home and abroad.

The importance of the report from the National Economic and Social Council (NESC) is that it comes from the people who have been at the heart of policy-making for the past 12 years: representatives of the Government, employers, the trade unions and agriculture who go under the general heading of "the social partners".

The job of the NESC is to prepare the way for a new national round of negotiations on a successor to Partnership 2000. For this reason in many areas it points the direction, rather than coming up with hard and fast recommendations.

Many of the issues touched on by the council will only be hammered out in the context of the talks, as the employers and unions try to agree on pay increase levels and the Government throws in promises of lower taxes and higher spending to try to sweeten the mix.

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What does the NESC report tell us about the likely shape of a new agreement? First, the very fact that the social partners have agreed the report is a signal that there remains strong support for a new agreement. The report is unequivocal in its recommendation that a new agreement is the best way forward for the economy, although it says that a fresh model must be developed.

It outlines clearly the economic progress of recent years. Total employment has risen by 335,000 over the past five years, and the unemployment rate has dropped to below 6 per cent. Meanwhile, the after-tax earnings of a single person at work in manufacturing have risen by 18 per cent more than the rate of inflation over the past five years, while a married worker has seen a 19.5 per cent rise.

The NESC recommendations are a combination of "more of the same" in some policy areas with fresh policy avenues recommended in others. In the area of income tax, for example, it says that priority should be given to increasing personal income tax allowances.

This measure gives the greatest benefit to lower earners and lifts some entirely out of the tax net. Its second priority for income-tax reforms is a further widening of the standard-rate income-tax band, to make sure fewer people pay at the higher tax rate.

These tax recommendations come as the Government is set to consider the final shape of the Budget tax package and to adjudicate between the kind of measures called for by the NESC and the more populist desire to reduce income-tax rates.

Whether the Government can agree with the other main financial recommendation - slower growth in current public spending - remains to be seen. With pressure on public-sector pay, slowing the growth of day-to-day spending will be no easy task for the Minister for Finance, Mr McCreevy.

Perhaps the most striking aspect of the document is the strength of its call for new measures to tackle poverty and social exclusion, which it says must include detailed targets. It recommends that a new benchmark be set for social welfare payment levels, although a call in an earlier draft that this level would indicate a rise of over 16 per cent in welfare levels appears to have been toned down.

However, the NESC is adamant that substantial increases are in order, and that after these are achieved welfare rates should be linked to the overall increase in living standards, which in recent years have increased by well above the rate of inflation.

This is part of the NESC's "vision" of a society which has living standards above the EU average, public services which compare with the best in Europe and a lifelong learning approach equipping people to participate in a dynamic and competitive economy.

It is an enticing vision, but it remains to be seen whether the conflicting demands on the fruits of economic growth which has now emerged can be reconciled as the talks on a new programme get under way.