The government must stand firm to the unions
The Irish government is now borrowing in excess of €14.7 billion, while the cost of repayment on these loans is increasing. The more tax the government has to spend repaying this loan, the less it has for more beneficial spending and the higher taxes will have to be. With roughly one third of government expenditure on public pay and one third on welfare, any cuts will have to include these areas. People at all levels are overpaid in this country, and this has been one of the strong factors in our loss in competitiveness.
These cuts must be made. To be fair, there need to be proportional cuts in salaries across the scale in the public sector. There was something particularly galling to see the higher civil servants on strike today as well as those earning far less than them. We are rightly shocked at Taoiseach Brian Cowen being the highest-paid head of government in Europe at €257,000. With this represented across the board and at all levels, we are not getting the value for money that other countries are getting. While the cost of living in Ireland is high, the level of pay is a considerable factor in this. And while the cost of living is decreasing at the moment, those on fixed income salaries are seeing a rise in real terms in the value of their salaries.
The simple point is that the government cannot afford to spend at its current level. Pay must be cut. At the top levels, this should be at a substantial level, even of 20%. Grades going down the scale should be cut at decreasing levels. At the lowest point, I would not advocate a direct pay cut, but a lowering of the tax base to include those at entry-grade level. This would, of course, apply across the board, in the private as well as the public sector. Even supporters of a proportional tax system should not support a system where only the top half income earners pay tax. Paying a certain level of tax acts as a reminder to the public of where public services come from, and why they should demand more efficient service.
The unions advocate increasing the higher levels of taxation. While it may seem a small amount extra for those who can afford it, with the top 5% of taxpayers paying 45% of the income tax in the country*, there is only so much this group can be targeted without affecting their incentives and risking a shift in capital investment out of Ireland. Not that the government should rule out tax increases, but in no way can they rely on them. And again, given the scale of our deficit, there is only so much of a reduction that can come through extra taxation.
Basically, the government overspent in the past ten years, willing to grant pay increases while they could afford it. Whatever Charlie McCreevy’s reputation as a fiscal conservative, this was true only to the extent that he cut taxes, stating that in terms of expenditure, “if I have it, I’ll spend it” (of course, the US Republicans also built up a massive budget deficit up to 2009, while cutting taxes, destroying the budget surplus that existed at the end of President Clinton’s time in office, with Vice President Dick Cheney claiming that “deficits don’t matter“). With the money associated with construction, either stamp duty or the related intake, and income tax down, with welfare payments up, they must cut back.
The trade unionists will rightly lay the blame for this recession and deficit on other hands, such as the lack of regulation in banking. But if it is not the fault of the public sector, neither was it the fault of the many in the private sector who have become unemployed or lost pay in the past eighteen months. This is not an attack on the public and civil service. I work part time in Dublin City Public Libraries, and it is by and large well run.
I think the government should be commended in December in as far as it does manage to tackle the problem, and be criticized most strongly if it fails to take hard decisions, particularly if it fails to tackle those interests closest to the party. We do need certain reforms to tax, as well as direct cuts in payments. I think stamp duty should be scrapped, and replaced with a property tax, as we should not find ourselves again relying on such a volatile source of income. I welcome the proposal from Fine Gael, of which I am a party member, to cut PRSI in an attempt to make employment easier, which should be offset with a properly implemented carbon tax. But I will be disappointed if Richard Bruton focuses his criticism on issues such as reductions in child benefit or if the party continues to oppose a reduction in the minimum wage, rather than, say, that more could have been taken on the top level of pay in the public service.
The unions seek to spread the recovery over a greater period of time, but this would only increase the cost of borrowing in the longer term. They are right to say that public sectors workers having less money will reduce demand in the economy. But we need this period of adjustment, in turn affecting prices, to make this country competitive again, so that the possibility of droves driving to Newry for their Christmas shopping will disappear, and that we once again attract inward investment. However tough it is for those working in the public sector, with pay as one of the biggest parts of the government’s bill, at around €20 billion a year, there is no alternative.