Pay increases ‘to cost taxpayers €3bn’

TAXPAYERS will have to cough up €3.26 billion by 2007 just to meet the latest generous pay increases being planned for the country’s civil servants, a top economist has warned.

For the same amount of money, the Government could cut the standard rate of income tax from 20% to 18.5%, or reduce the VAT rate from 21% to 19%.

The recommended average salary rise of 9% for the 260,000 public sector workers at a cost of 1 billion under the benchmarking process is entirely unwarranted, according to Colin Hunt, director of research at Goodbody Stockbrokers.

Mr Hunt's damning indictment of benchmarking, contained in an unpublished report, bluntly states: "A basic analysis would conclude that public sector employees are not under-remunerated compared with their private sector peers."

Last year, the benchmarking body made its recommendation on the basis the public sector was unable to hire staff because its pay levels supposedly lagged behind those in the private sector.

At an average wage of 36,674, public servants were the second-best of all categories of workers, the report shows.

Construction workers, at 39,960 came out on top, but they had less job security and smaller pensions.

New figures published last week by the National Quarterly Household Survey showed public sector jobs increased in 2002, although industrial and agricultural employers shed labour.

"The public sector, which has had a very big growth in employment, has shown no impediment in recruitment," said Dan McLaughlin, Bank of Ireland chief economist. "This undermines the whole rationale of benchmarking in the first place."

Pat Delaney, director of the Small Firms' Association, said the report would add to concern about the direction of the economy. He said the only employment growth in the Irish economy last year was in the public sector. The private sector lost 20,000 jobs.

"Public servants must also put a premium on their job security," he added. "When the economy turns bad, it is the private sector workers who pay with their jobs."

The Goodbody report, the most thorough analysis of the deal to date, says public servants were the second-best paid category of workers, earning 50% more than the average industrial wage when pensions and job security were taken into account even before the pay increases were awarded.

The Goodbody report found the value of average public sector pensions exceeded that of the average industrial worker by about 800,000 at retirement.

Recently, the Government, unions and employers agreed a three-year pay deal that will give public sector awards of 7% over 18 months on top of benchmarking increases ranging from 2.5% to 25%.

Goodbody's conclude the strategic shift in fiscal policy since Charlie McCreevy became Minister for Finance will cost the taxpayer the equivalent of almost 22bn by 2007.

Apart from a net 3.26bn for benchmarking, the other huge drains on exchequer resources are the special savings incentive accounts (3.7bn) and contributions to the National Pension Reserve Fund (8.5bn).