Preparing Budget 2015 - Inequities on pay must be confronted

The weekend suggestion from Simon Harris, the junior finance minister, that income tax should be cut adds momentum to statements made by senior cabinet ministers Michael Noonan and Simon Coveney. If that expectation is not met, then the political consequences will be severe.

Preparing Budget 2015 - Inequities on pay must be confronted

CSO yesterday show that public sector pay is 48%, (an average of €919 as against €622) ahead of rates in the private sector. Earlier, European data showed Irish public sector average pay, despite all of the cuts and our huge borrowings, is higher than most other countries. That this disparity exists, despite all of the reform promises, all of the one-way benchmarking, does not auger well for social cohesion. This issue, no matter how difficult, must be confronted and resolved.

That obligation will not be made any easier by making unsustainable tax cuts which would have an impact on everyone, not just the incumbents in Government Buildings. And there’s the rub; one man’s sustainable is another man’s catastrophic indiscipline; one man’s austerity is another man’s way of balancing the books. This never-changing reality played out in Paris again yesterday when prime minister Manuel Valls presented his government’s resignation, a day after economy minister Arnaud Montebourg called for new economic policies and questioned Germany’s “obsession” with budgetary rigour.

Montebourg warned that deficit-reduction measures imposed since 2008 were crippling the eurozone’s economies and urged governments to change course or lose voters to populist and ever-more extremist parties. That warning is as relevant here as it is in France. That caution may be even more pertinent as the relevant data increasingly shows that the eurozone economy has ground to a halt and that the parallels with Japan’s lost decade are becoming more and more undeniable. The blame game has moved to a different level too, central bankers are defending central bankers while the great majority of Europeans look on more with a mixture of desperation and hope than comprehension.

The central bankers have suggested “structural reforms” and in what seems an unfortunate if predictable German contribution, Hans-Werner Sinn, an economics professor, president of the IFO institute and senior government adviser, suggested that Italy’s faltering economy — and probably Europe’s stagnating economies — could be steadied by wage cuts. How this might encourage growth or the kind of political stability needed to guarantee social cohesion or even long-term peace seems a mystery.

Against this background, a pretty modest tax cut seems almost irrelevant, but it does show that this is a high-wire, high-risk game. The natural, short-term ambition must be for tax cuts, but the long term view must be based on sustainability and equity — and that means resolving the glaring pay inequities between our public and private sectors.

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