Benchmarking endangers Celtic Tiger

THE Celtic Tiger is not dead and gone it is merely limping. But to deliver on public pay hikes promised under benchmarking would make it extinct.

Ireland can look forward to growth of between 4% and 4.5% over the next year. But this can only be achieved if the right policy decisions are taken, one of the country's leading economists has warned.

"Controlling of public spending is necessary and cannot be indiscriminate. We have to target spending carefully as well as targeting cut-backs. We can't strip money out of public capital.

"One of the biggest challenges on the horizon is benchmarking of public sector pay," Friends First chief economist, Jim Power, said.

"I don't believe that benchmarking should be delivered," he said.

"To pay out 1.2 billion would be an economic mistake. The Irish economy has weakened very dramatically and very quickly. Public finances have deteriorated very quickly on the back of that. Quite simply, we are now in a situation where we cannot afford it.

"The big issue for government now is to prioritise. If they prioritise benchmarking and public sector pay, it will be at a cost of something else.

"That something else could be infrastructure or else higher tax. And the one thing the Irish economy does not need at this point in time, given all the other external difficulties we are experiencing, is higher tax," he told the Steering the Irish Economy seminar organised by Waterford Institute of Technology yesterday.

Those in the private sector have benefited on the back of the Celtic Tiger. But the reality now is that the world has changed. The Irish economy has started to deteriorate. The private sector has been hammered. It is taking a lot of the pain at the moment.

"If things get worse, who will lose their jobs? It will be the private sector workers. Whose pensions will be affected? It is those of the private sector workers. Public sector workers have jobs for life. They have secure, pensionable employment and they are sheltered from commercial reality in many instances.

"At the end of the day, in a different economic environment, we have got to recognise reality."

Unless there is a dramatic change in the Irish economy, something which Mr Power sees as unlikely, our nation cannot afford benchmarking.

There is a finite pot of money there and it is now a question of priority. I have sisters and a sister-in-law who are teachers and I recognise their plight. But I also recognise the difficulties we face in the private sector."

It would be a huge mistake to start stripping money out of public capital programmes and education.

Cut-backs, like spending, have to be very carefully targeted. One of the biggest challenges will be making the right cuts, ones which will not harm the Irish economy going forward, he added.

Ireland cannot continue to inflate at three times the European rate. Foreign direct investment will continue to be a problem. It will be a much more difficult and competitive environment.

We need to move up the value chain. The competition in such an environment becomes a lot more intense.

"The education system here has been a very important factor in driving the Irish economy. We cannot target cuts there, or in infrastructure. By comparison, our infrastructure is still third world. Spatial strategy is critical and we have to invest more in infrastructure.

"Stripping or taking money out of infrastructure would be disastrous for the economy.

"Projects such as the Bertie Bowl were a total waste of taxpayers money and I am delighted that it has been given a Christian burial.

"If the private sector delivers on it, so be it. But it is not a priority for taxpayers' money."