The Government struck a good balance with its pension levy but it should not expect to be loved, writes Eoin Martin.
Brian Cowen appeared nervous and depressed when he gave his short press conference in Government Buildings last Tuesday. Despite that, he seemed more himself, spoke without a script and was infinitely better than his abysmal earlier Dáil performance. At last, the Government was moving on the long road to economic recovery.
The Irish Congress of Trade Unions (ICTU) pulled out of the partnership talks at the last minute and the Government moved rapidly to implement the planned cuts anyway. Whether this strategy will succeed depends on two contradictory questions – has the Government gone too far? Or has the Government gone far enough?
The Taoiseach told the Dáil that €1.4 billion would be saved by means of a graduated pension levy. Civil and public servants will now have to contribute between three to nine per cent of their salaries towards their pensions depending on their current pay rates. Additional savings will be made by cancelling pay increases, certain capital expenditure, aid and administrative costs.
Within government circles, it was clearly felt that the unions didn’t want to have to sell such unpalatable measures to their members so decided to withdraw their support and let the Government take the flak. Union leaders pointed out that many workers already contribute to their pensions and that they argued it was unfair for the public sector to have to “carry the can” for the private sector who got us into this mess.
“It seems plausible that union leaders accepted the pension levy in principle; it may even have been their idea”
It’s seems plausible that union leaders accepted the pension levy in principle; it may even have been their idea. There is no doubt that everyone accepts the need to cut spending by at least €2 billion this year, probably more, because tax revenue is drying up and we cannot keep borrowing at interest rates that are higher than the rest of Europe.
All things considered, the pension levy, while highly unpleasant, is about the least unpleasant way of achieving what needs to be done. It doesn’t reduce the salary rates of existing workers which means both their pensions when they retire and existing pensioners are protected. Obviously it does substantially reduce the real income of workers but that helps make the economy more competitive and prevent further job losses.
The accusation that public servants are bearing the brunt of the pain while the private sector escapes is unfair. Private sector workers mostly already pay towards their own pensions anyway and have no job security hence the massive rake of redundancies in recent months.
Since the advent of benchmarking, many in the public sector, particularly the lower grades, were better off than their private sector counterparts. These counterparts, if they’re lucky enough to still have their jobs have in many cases already been forced to take pay cuts or work shorter weeks. Furthermore, the unions never objected to pay increases being paid for out of stamp duty revenue generated by the property boom, even though it fuelled inflation.
No, it cannot be said that the Government has gone too far. Has it gone far enough though? Yes and no. Even if the cuts are fair, they are clearly perceived by many to be unfair and there’s a reason for that.
Brian Cowen and his ministers have been bullishly ignoring some of the more constructive criticism from the opposition benches. Foremost amongst this is concern about a lack of overall strategy.
If the Government had presented some of its tax proposals now, it would have given the appearance of a more equitable approach. Taxes on higher incomes and property would have hit higher earners and helped placate those who feel the burden is not being shared. As it is, that announcement has been delayed.
The Government has also overlooked the plight of small business, repeating ad nauseam that it will use the National Development Plan to create jobs. That’s not where they’re being lost though, nor where real growth will occur.
With Civil Service reform also on the long finger, the perception continues to be of a government doing only barely enough to keep all of our heads above water. Public unhappiness is likely to deepen and Brian Cowen shouldn’t expect his news conferences to get any easier.