Public pay cuts ‘should be considered’
Public sector pay and pensions are protected by the Croke Park agreement.
Moreover, the council, which has a role to independently assess whether the Government is meeting its own stated budgetary targets and objectives, recommends that the Government makes a further €1.8bn in budget cuts over 2014 and 2015 in order to stabilise the country’s budgetary position.
Chairman of the advisory council, John McHale, said the recommendations on public sector pay and pensions was not included in the main body of the report, “but it is my personal view and it is a view shared by the Fiscal Advisory Board. All margins for adjustment must be kept open”.
Under the Croke Park Agreement, savings are to be made from greater flexibility and efficiencies across the public sector. But the Government has to get the budget deficit down from a projected 8.3% of GDP by the end of 2012 to 3% of GDP by 2015.
In view of the many downside risks to the economy, Mr McHale said the scale of the proposed budgetary adjustment may not be possible through further efficiencies alone and a “hybrid approach” may be needed, which included cuts to public sector pay and pensions. “Given the extent of the required total adjustment, the council again urges that all adjustment margins be kept under close review, including tax rates, public sector pay/pensions and welfare rates,” the council said in a statement.
In a further mild rebuke for the Government, the council criticised the fiscal stimulus package announced in July. Under the programme, the Government proposes a further €2.25bn in capital spending.
“We would say two things about this [fiscal stimulus]. We do not agree that it should be separate from the main fiscal programme and in the current condition we do not see the case for any relaxation of the fiscal adjustment,” said Mr McHale.
Overall, the fiscal council said the Government should be able to achieve a budget deficit of 8.3% in 2012, but it warned against future overspending.
Moreover, the council said that “debt sustainability and creditworthiness remain fragile. Weighting the risks to debt sustainability and ongoing weakness in the real economy, the council supports an alternative fiscal stance involving a total of €1.9bn of additional adjustments in the period to 2015 compared with the Government’s baseline.”
Board member Donal Donovan said that while a restructuring of the €28bn in promissory notes relating to Anglo Irish Bank would not reduce the overall debt-to-GDP figure, it would greatly enhance the Government’s fiscal flexibility over the near and medium term.
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