Cut in welfare and a reversal of benchmarking urged

THE tripartite report on the economy by three leading Irish stockbroking companies said the public sector pay bill has to be tackled with reverse benchmarking, if the economy is to be restored.

It said also the social welfare bill was such a big part of the budget that “social welfare spending was too big to ignore”.

It said the public sector pay bill has almost tripled since 2000 to reach almost e19 billion. That has increased costs and had a negative impact across the economy.

As a result of the excess wage increases “minimum savings” of e4bn have to be achieved to bring the public pay/GNP back to 11% in line with the 2003-2007 average, the report said.

“Pay cuts must form part of the overhaul,” it added.

And the attraction of pay cuts is that they match what is already happening across the private sector, said the report.

Rossa White of Davy Research stressed the need for transparency in relation to pay, and said “benchmarking” on the way down to track wage falls should be part of the overall Government package to track public sector pay.

The report said: “Obvious cuts in bloated administration and middle-management in the public service need not affect service delivery.”

On social welfare — an area singled out earlier this week by IBEC in its pre-budget submission for significant cuts — the brokers said that, at the very least the Government, faced with making massive savings, cannot ignore the impact of social welfare payments on the overall budgetary figures.

Because of the welfare increases announced in the October Budget and the fall in inflation, payments will go up in real terms by 7% this year. Pushing through social welfare cuts would be difficult politically, but the reality is that the cost of welfare this year may work out at e500 million more than already estimated due to rising unemployment.

That is an issue coming down the track in 2010, and each rise of 1% in welfare payment will add e225m to the cost of funding, based on the rising level of unemployment, said the brokers.

The report said the Government should make a start by “means testing” some welfare payments.

Much can be done to cut costs within the public sector by ensuring greater efficiencies, which is being addressed by Colm McCarthy in his brief as head of the Special Group on Public Service Numbers and Expenditure Programmes.