Will the Soldiers of Destiny flee at first sight of ICTU’s battle tanks?

THE cabinet is working a double shift. Along with their regular weekly Tuesday meetings they sit every Thursday to deliberate on the budget. Their target is to obtain a €4bn reduction in public expenditure.

The proportions of pain to be administered are ... public sector payroll to be reduced by €1.3bn, welfare to be cut by €1.3bn and other services by €1.4bn. This is slide-rule economics, as it is broadly in line with their respective proportions of total public service costs.

The fiercest opposition to this remedy has come from the public service trade unions. Impact, SIPTU, CPSU, Mandate, Unite, INO, GRA and the Frontline Alliance have all parked their battle tanks on the Government’s front lawn.

Under the umbrella of ICTU, they are organising a national day of protest on November 6 followed by a one-day strike on November 24. Union leaders are obliged to “do what it says on the tin”, namely defend the pay and conditions of their members. The mistaken view of social partnership was that they had a responsibility to rectify the public finances or govern. They never had and never will. After 18 months, the Taoiseach has to learn this reality.

ICTU has set out a 10-point plan as an alternative menu of a fiscal remedy to our unsustainable public finances. This mostly comprises slogans: protect incomes and thereby personal spending; fairness in society and support job retention. They also advocate higher taxation on the wealthy. No matter how many times you re-read their documentation you cannot find measures that will reduce the government deficit by €4bn.

They don’t attempt an alternative because there is no alternative. Instead they advocate deferring action on the public finances from 2013 to 2017.

This deferred pain programme has to be considered, not least because the FF/Green government may well end up repeating the errors of the FG/Labour administration’s borrowing bonanza of the 1980s. Our weekly current budget deficit is €480m (ie, the excess of spending over revenue).

We will borrow €25bn this year to fund this differential. This amounts to 12% of our national income (GDP). If we don’t tackle this now, by 2011 it will rise to 15% of GDP. Our national debt could spiral from €37bn in 2007 to €160bn in 2014. Our international creditors who fund this debt will require its repayment plus additional interest. Within three years, we face the horror of all our PAYE taxes repaying debt. This simple arithmetic has a compelling logic. We must act now. In fact, we should have acted decisively in July 2008. This Government has presided over endless talk and very little action. Budget day on December 9 represents their last opportunity to turn the tide. Economic recovery, which is now beginning to emerge internationally, will not start to occur here until we bite that bullet. Investor confidence and enhanced competitiveness will only flow from decisive measures of cost correction. All costs in our economy (eg, property, payroll, energy, professional fees and public services) have to be reduced by 20%. Only then will jobs be viable and self-sustaining.

The pay debate has been subject to more heat than light. The CSO and the ESRI have carried out a myriad of public versus private sector pay comparisons. They indicate a differential on a like-for-like basis of between 19% and 26% in favour of public sector workers.

The core cause of this was benchmarking since 2002. A case was made for the public sector to catch up with the frothy excesses of Celtic Tiger gains elsewhere. Over the past two years these bonuses, top-ups and allowances in commercial employment have been decimated. Benchmarking Three is now required. More than 15,000 top civil servants are earning in excess of €100,000 a year. Any EU or international comparison makes this unsustainable.

Brendan Drumm is paid €450,000 a year for running the HSE. His opposite number in the British NHS has 10 times the volume provision and half the salary. His equivalent in the US health service has a 100 times the level of operation, yet has 60% of his salary. This relativity can be applied to most senior posts. Pay cuts of at least 5% are justified for the top tiers of public administration.

The public sector pension time-bomb has to be addressed. The National Pension Reserve Fund of more than €20bn does not provide adequate cover for future state pension costs of €108bn. There are currently 5.6 Irish workers for every retiree. By 2050, this will reduce to a ratio of 1.8 to 1.

Existing pension schemes in the private and public sectors are unsustainable, not because of the 40% decline in their fund values. There are insufficient contributions to pay for defined benefits, linked to incumbent pay grades.

The choices are stark: greater contributions from worker participants, reduced benefits for all present and future pensioners, or insolvency. Within two years virtually all private pensions will be converted to defined contributions rather than defined benefits. This fundamental shift will be unavoidable for government. One of the more politically hopeful signs of the past fortnight was Eamon Gilmore’s acceptance that the public sector pay bill would have to be reduced by 5%. The sugar candy coating on the pill was that this might come in the form of reorganisation and restructuring rather than direct pay cuts.

This may be illusory, but it is worthy of consideration. Private companies have reduced payroll costs by up to 25%. This has been achieved primarily through pay cuts. Other measures have included reductions in personnel allied to new work practices and greater productivity — two people doing the work of three.

EMPLOYERS have systematically eliminated overtime payments and bonuses. They have demanded that workers carry out more menial tasks such as cleaning and administrative duties, disregarding previous demarcations.

Financial controllers have reduced costs through subcontracting out in-house work. This has amounted to dismantling previous terms and conditions of employment.

The unspoken truth within businesses has been “it’s this ... or else we go out of business”. The job survival mantra doesn’t apply to most public sector employment. Teachers, nurses, gardaí and civil servants won’t lose their jobs. Will private sector pragmatism prevail among our 350,000 public servants?

Brian Cowen has a consistent track record. He articulates tough tones of obduracy and then compromises. The past three budgets have all been followed by political climb-down (eg, medical cards for pensioners and the pension levy applying to net income).

The most recent example was the renegotiation of the programme for government with the Greens. At the last minute FF’s education stance on third-level fees and pupil-teacher ratios was abandoned in lieu of pragmatic expediency. Fancy footwork on drink-driving limits may kick that ball into the lifetime of the next government. ICTU leaders and members are not fools. Saddam Hussein’s much-feared Republican Guard dissipated in the face of a military invasion. Don’t be surprised if FF’s Soldiers of Destiny back down on the public pay battlefront. If so, we’ll all pay later.