The Coalition Government has done serious, if not fatal, damage to the prospects of negotiating a new partnership agreement because of the provisions of this week's Budget and its facilitation of an extensive range of service charge increases.
Direct action by the Minister for Finance, Mr McCreevy, added almost one per cent to the consumer price index through higher excise duties and indirect taxes, and this is expected to feed into a headline inflation rate of 6 per cent as negotiations between the social partners reach a critical stage. Such a development, when the employers' group, IBEC, is seeking a pay pause as part of any new wage deal, places the trade union movement in an invidious position. The protection of workers' living standards was made a priority in any negotiations by the general secretary of the Irish Congress of Trade Unions, Mr David Begg, and that can now be achieved only through significant pay rises.
The last two partnership agreements were underpinned by tax reductions that effectively subsidised employment creation and increased profitability while, at the same time, giving workers a net increase in their take-home pay. On this occasion, however, "stealth taxes" were introduced in the Budget, in tandem with a promised reduction in the rate of corporation tax. VAT was increased on certain goods and services. And income tax bands were not adjusted to take account of inflation. On top of that, motor tax will rise by 12 per cent. New charges and exemption limits are being imposed on the services provided by local authorities. A similar situation applies within education and health. And charges by semi-state companies are also rising. Some economists estimate the combination of new charges and tax changes may add 2 per cent to the consumer price index next year.
Mr McCreevy has deliberately chosen to raise taxes, while leaving the hugely expensive special savings incentive scheme untouched. It may be that the Coalition Government is preparing for change, after 15 years of social partnership. Certainly, the parties involved in the Programme for Prosperity and Fairness accepted some time ago that the original formula would have to be modified to meet altered circumstances. By setting aside €565m to pay the first phase of benchmarking in the public service, the Minister for Finance has signalled the Government's willingness to negotiate with the ICTU. And the estimates for next year provide for an overall increase of 10 per cent in the public service pay bill. However, IBEC's insistence on a pay pause, followed by wage increases that would fall short of the level of inflation, would suggest that an old-style, partnership agreement embracing both the public and private sectors may no longer be feasible. Discussions between the various parties will take place during the next few weeks. But senior officials within the trade union movement gloomily estimate the prospect of a deal at 50 per cent or less.