The public sector pay talks adjourned after opening statements from both sides yesterday. Meanwhile, we learn that EU economic and financial affairs commissioner, Pierre Moscovici, is to visit Ireland in a fortnight to discuss the economic situation and outlook for the budget. The two developments are, of course, linked.The European Commission is warning the Government that it needs to be cautious, particularly given our high debt level, in planning tax cuts and spending rises in the budget. With a general election coming into view, it remains to be seen how the Government responds.
After the economic crisis, major questions arise about the future shape of economic management. The Government points out that it is restricted by EU rules in framing its budgetary arithmetic and that there must be no return to the “boom to bust” cycle of the past .
The commission’s statement, and the trip to Dublin by its senior economic official, show that Brussels, also, is not afraid to argue its case. And its fundamental point is that the current favourable period should be used to cut the deficit and reduce the debt ratio as quickly as possible. It is also concerned about competitiveness and the risks of general wage pressures at a time when unemployment is still high.
Inevitably, what actually happens will be a compromise. The Government will give some concessions in the budget but will also aim to reduce borrowing further next year, as EU rules demand. In doing this, however, some caution is called for. A lot is working in the Government’s favour at the moment, with strong growth, low interest rates and increasing exports.
Whatever strategy is put in place needs to take into account the danger that this favourable scenario may not continue. Current projections assume that economic growth will continue year after year at an annual rate of 3 – 3.5 per cent, but this may not happen. The EU Commission is correct when it argues that we need to leave room for manoeuvre. Public sector pay is a part of this budgetary arithmetic, though only one part. It is appropriate that the Government as employer should sit down with the public sector unions to discuss future pay – and that public servants should share in the fruits of the upturn.
However, realism is needed, too. The old system of increasing public pay and numbers year on year was one of the reasons the public finances got into an unsustainable position. Whatever new pay-setting mechanism emerges, it must avoid a repeat of this. Minister for Public Expenditure Brendan Howlin is correct when he points out that ongoing reform is vital. For the next few years, resources will be tight enough, even if economic growth delivers, and setting priorities and delivering on them will be crucial.