State urged to cut minimum wage by 10%

ONE of the Government’s most trusted economic advisors has said the minimum wage must fall by 10%.

Peter Bacon, who was drafted in to guide the Department of Finance on the establishment of the National Assets Management Agency, said salaries at all levels had to be reduced.

And he said this was not viable unless it included a cut in the minimum rate of €8.65 an hour.

“All wages [are too high], it’s not only the minimum wage but I would not exclude the minimum wage.

“I think if you are going to be serious about achieving the kind of competitive gain that is required... you cannot avoid a downward adjustment in nominal wages,’ he said.

Mr Bacon was speaking after a morning address to the MacGill Summer School in Glenties, Donegal. He said the Irish economic model was not sustainable as it expected high social welfare payments without a taxation model to support it.

“I think we may have entered into a delusion in Ireland that we can have European social benefits and Anglo-American social contributions,” he said.

His call to slash the minimum wages seemed to be supported by Health Minister Mary Harney. Speaking in Dublin, she said when she introduced the minimum wage as Enterprise Minister it was “substantially lower” than it is today.

“If we are going to contemplate cutting social welfare payments, in the context of the very serious budgetary situation we find ourselves in, than I think everything has to be examined.

“I think given the economic challenge this country faces everything has to be on the table,” she said.

Dr Bacon said there was still a lack of clarity on the extent of the country’s problem.

He pointed to question marks on the so-called structural deficit. This is the level of debt the country is clocking up due to a shortage in domestic tax revenue, outside of global recession.

He compared the ESRI estimate of 6%-8% to the International Monetary Fund’s recent figure of 10%-11% which he said would spell serious trouble.

“Now if the structural deficit is at 10 or 11% we [have] seen nothing yet.”

He said economists should work out the exact state of the country’s finances to allow a “credible target” for recovery.

This along with painful measures, could see the worst of the recession pass in four years, Mr Bacon said.

“Confidence both within the country and outside it is so poor that I think a key factor for any government dealing with any problem is if you say it you better mean it and you better deliver on it... Because every time you miss a target there is a further ratcheting down of confidence,” he said.

On Bord Snip Nua’s recommendations for €5.3 billion worth of public sector cuts, Dr Bacon said it was a menu of choices which had to be acted on soon.

“I don’t know if it is a full menu or is it an a la carte menu but it better be an early bird menu,” he said.

Today Bord Snip Nua’s chairman, Colm McCarthy, Finance Minister Brian Lenihan and Labour leader Eamon Gilmore will speak at MacGill.