FERGUS FINLAY: Public sector pay cuts unfair and counter-productive on the tax front

I THINK if I were a public servant today, I’d be mad as hell.

With a few well documented political exceptions, I’ve never known anyone who went into the public service to make money.

In fact if you wanted to make money, the last place you’d go for a career is into the public service.

Some people choose a public service career for security and many choose it because it offers the chance to do something or to be something they’ve always wanted to be. A nurse, a doctor, a teacher, a fireman. To work at healing the sick, catching the baddies, teaching the kids — I’ve known people who grew up from childhood wanting to do just that, and who have found tremendous fulfilment from following a chosen career as a public servant.

And I’ve known public servants who maybe ended up in places they never expected to find themselves, and nevertheless did the state more than a little service. It is public servants who run our libraries (and if you haven’t visited a library lately, go and take a look — it will knock your socks off).

It is public servants who help Irish manufacturers to market their goods and to export them. It is public servants who, behind the scenes, probably did as much and more to bring peace to this island than any of the higher profile politicians who routinely claim their place in history.

I could go on. But you’re going to have to take my word for this, if you haven’t had direct experience of the public service. As I said, I’ve never met a public servant who was in it for the money. And I’ve never met a public servant who wanted to let his or her country down.

Sure, they’re not all equally able. They’re not even all equally pleasant. We’ve all, I’m guessing, had both good and bad experiences at the hands of public servants. But I’m guessing we’ve all had mixed experiences at the hands of business people, bankers, priests, shopkeepers, mechanics, car salesmen, dentists, doctors, and the thousands and thousands of other people who make their living in the private sector in Ireland.

So why, I wonder, are public servants being told, day after day, that they have to bear the brunt of the public expenditure cuts? In addition to that, why are public servants being constantly attacked and derided as if they had suddenly become the fat cats in our society?

Why is there such division, and it seems such jealousy, between the public and the private sector? When public servants, quite rightly, point out that their pay has been hit by the pension levy, the commentators immediately snap that it’s only a modest contribution to the real cost of their pensions.

But for years and years public service pay in Ireland was calculated on the basis that the value of the pension had to be taken into account when making comparisons. In other words, public service salaries tended to be lower than those in the private sector because there was more security in the public service and the pensions were related to income rather than to the contribution made.

I’ve always argued (and I see the OECD is doing it too) that some government has to bite the bullet on the pension issue by closing down the “defined benefit” scheme (which relates pension to salary) for new entrants to the public service, and by placing all new entrants on a defined contribution scheme (which relates pension to the amount you pay into the scheme).

Such a change would bring the cost of funding public service pensions down dramatically over time. It would also mean that everyone in the economy who was working towards a pension, whether in the private or the public sector, would be on the same footing.

But you know what? The pensions entitlements of public servants haven’t actually changed at all. What has changed is that many pension schemes in the private sector have lost huge value partly because of mismanagement and also because the equities and stocks and shares they have been invested in have been damaged by greed and incompetence. More than a few pension funds, for instance, invested heavily in Irish bank shares. Need I say more?

And we’re being told every day that public service pay is at the heart of the whole public expenditure problem because it accounts for a massive proportion of public spending.

When they’re talking about public spending, commentators seem to use whatever figure comes into their heads. I’ve heard it solemnly reported on the radio that public service pay accounts for proportions of spending ranging from 50% to 75%. There’s a mantra about it — “it’s simply impossible to cut public spending (and thereby save the economy is the inference) without cutting pay because pay simply accounts for too much”.

The actual figure is about one-third. Public service pay is about one-third of public spending. So every €3 you take off a public servant should give you about €1 in public spending cuts.

There’s a couple of problems with this. First, every time you take €3 off a public servant, you lose anything up to €1 in tax revenue because (unlike a lot of people in the private sector) public servants are all PAYE workers — cut their pay and you immediately lose the income tax they give you. So actually, if you want to get a cut of €1 in overall public spending from public service pay, you have to take around €4.

The Government has said it wants to take €1.3 billion from public servants as their contribution to resolving our financial crisis. If it means that as a net figure (taking account of the loss in tax revenue), it’s going to have to cut pay by around €1.7bn in fact. That’s 10% of the public pay bill from January 1 next.

BUT IF it wants to apply that kind of a cut so that lower paid public servants have to take a hit of, say, 5%, it’s going to have to cut middle income public servants by around 15%.

It was not the public service, nor anyone in the public service, who precipitated this crisis in the first place. And when we’re not busy sneering at public servants, we totally depend on them. Take away our public service in Ireland and you drive a huge hole into our quality of life.

Against that background, the kind of cuts that are now having to be considered, to yield a net €1.3bn in public spending reductions, are savage. They will have a huge impact on thousands of families (some commentators don’t like us noticing that public servants have families, too) and they will seriously damage morale in vital services.

Despite what the commentators might like us to think, cuts of that magnitude are fundamentally unfair. I mightn’t agree — in fact I don’t agree — with the proposition that our economy and our school system can be shut down for a day, or maybe more, by public sector protest. But because the whole approach is so unfair, I can fully understand the anger behind that protest.


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