Method of calculating Croke Park savings may be flawed
Monday, October 15, 2012
ROUGHLY 17% of the working population are employed by the State.
The work they do is essential; and many do it on small salaries. They are not responsible for the country’s financial woes. There is a strong argument that lower salaries be protected.
The money we spend on public sector pay each year is roughly equivalent to the amount we currently borrow to bridge the deficit, just over €15bn. We are in the process of reducing the deficit, but the Croke Park Agreement means that we cannot touch core pay in the public sector to do this.
Croke Park is at the centre of government policy. Core pay will not be reduced so long as other savings are made in the public sector, and long overdue reforms are delivered.
Such a constraint on economic policy naturally makes the task of correcting the deficit more difficult. So we must do two things: use those tools outside of Croke Park that are available to us; but also, robustly challenge the savings that are being reported under Croke Park to satisfy ourselves that the agreement is delivering on that front.
Last week, the implementation body for the agreement came before the Public Accounts Committee and both those assumptions were tested.
Allowances in the public sector are worth €1.5bn. When the Government recently tried to identify savings of only 5% of that figure, it encountered resistance. The reason given was Croke Park. Earlier in the year, a Government discussion over the possibility of freezing increments in the public sector was shut down. The reason? Croke Park.
Next year we will increase public sector pay by at least €170m through increments. That figure does not include pay rises being awarded in local authorities. The figure then should be assumed to be much higher than €170m. How much higher we don’t know, because the details have not been given to the Dáil.
And yet, neither pay increases (increments), nor allowances, are a part of the Croke Park Agreement in the first place. They are not mentioned in the document. And the agreement’s implementation body admitted as much.
So why have increments been taken off the table altogether, and why the hesitation with properly tackling allowances?
Pay increases in the public sector, for those on higher wages, must be put back on the table if we are serious about correcting the budget deficit, and if we are serious about doing so in a fair way in these difficult times. It should also be the policy of those who seek to retain the Croke Park Agreement as core government policy, as not doing so only undermines the agreement itself.
Separate to that point, there is a question mark now over how savings are calculated under Croke Park. Last week in the Public Accounts Committee, we heard that the method for calculating savings under the agreement includes a 25% increase when calculating the salary savings from a retiring public servant; and, an additional 40% when calculating non-pay savings from a retiring worker.
There is a rationale behind why these calculations are made in both instances. The first is related to anticipated pension-related savings (though there is an argument as to when these will actually accrue as savings). The second concerns overheads that are no longer incurred for the retiring member of staff. An independent review by Grant Thornton of one particular project under Croke Park — the re-organisation of local offices in the Department of Agriculture — found that the Department of Agriculture believed “the 40% allocation for non-pay costs, while in line with Department of Finance guidelines was considered excessive, relative to actual costs incurred”.
This was the Department of Agriculture’s view of the methodology for calculating the savings — excessive, relative of actual costs incurred. What is the rationale behind the Department of Finance’s methodology? Is it robust, or are the percentages being used excessive? What then are the actual savings being achieved under the agreement?
This one instance with Agriculture is relatively small in financial terms. But if the methodology is not the best one, should we continue to use it?
These questions are important. If we cannot rely on the numbers that are coming back to us from the public sector, how can we have confidence in the agreement and what it says it is delivering? How can we then defend the agreement rigorously?
It is now time to bring people from outside the public sector on to the implementation body for Croke Park so that we can have a more independent view of what is happening. Aside from the independent chairman, all other members of the overseeing body will be directly affected by its outcomes. It is only fair to ask: In whose interests are they working?
An agreement was made to protect public sector core pay through these difficult times while other reforms and savings were achieved. The actual extent of these savings is now, at the very least, in question. The independence of the implementation body needs to be strengthened. And protecting core pay does not mean protecting pay increases and unnecessary allowances for those on higher salaries.
Every euro saved is a euro better spent on vital frontline public services that benefit us all.
* Sean Conlan TD, Paul Connaughton TD, Pat Deering TD, Brendan Griffin TD, Noel Harrington TD, Sean Kyne TD, Anthony Lawlor TD, Eoghan Murphy TD
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