IMF could take over and "order" mass dismissal of public servants

[smitchy2]

The IMF is on the verge of collapse, it may find itself having to ask Governments for financial intervention. We will then see the ridiculous scenario of Governments borrowing from an institution that has heavily borrowed from them. I suspect more than a few Governments will reject a call from the IMF for a cash injection leaving it destitute and effectively out of business.

In these extraordinary times we may see a number of Governments pooling their resources in other ways with the distinct intention of dumping the IMFs failed neo-liberal policies on its arse.

It’s simply more of the same failed thinking applied to a growing financial catch 22 that was fabricated on that failed thinking in the first place.

I would agree that it is unlikely that there will be IMF involvement.
I am not privy to the current state of the IMF itself, however I would certainly not agree with their methods.

This country is facing a lot of pressures to refinance this year.
I am afraid Ireland would not have many resources to “pool” together if any such arrangement between governments together. There will not be many in the EU who want to give Ireland any more funding!

I just have a feeling that the government plan is a failed one and €2bn in public expenditure cuts goes no where near to balancing our books, especially considering they also said there will be no more tax increases.

[Dios]

Well then, if you introduce drastic cuts in the Public service you will see a corresponding reduction in the quality of that service.

To be honest, the growth in public sector pay at three times the rate of the private sector since the start of benchmarking, and the hiring on of over 30,000 additional public sector workers, didn't improve the quality of services very much, so dialling it back by a comparable amount will hardly do much damage.

On the deficit, where exactly do you think the money will come from to pay the public sector if its not cut back? Drastically increased taxes? I think you'll discover the general public will find that a hard pill to swallow - the unions won't be the only ones demonstrating in the street!

As for the IMF, if you are reduced to a sorry enough state that you must turn to them, what they say goes. It really is a like it or lump it situation, never mind the international disgrace of having been led into the next century by the hand like a simpleton who couldn't manage their own finances.

[locke]

I have a feeling that we're going to see a massive reduction in civil service expense allowances.

That has a double benefit for the state finances. Not only does it reduce the amount paid out to public servants, but it would also reduce the amount of BIK-free expenses that can be claimed in the private sector, leading to an increased tax take (although most companies would probably reduce their own expense allowances).

I would imagine it would also see less resistance from the unions than a reduction in actual income.

[Dios]

I think you are hugely underestimating the impact of a General Strike (that’s an all out Strike that will effectively shut the country down). It would topple the Government and well they know it.

Lets be clear here: you are talking about using organised resistance to topple a democratically elected government?

[Kevin Doyle]

I would agree that it is unlikely that there will be IMF involvement.
I am not privy to the current state of the IMF itself, however I would certainly not agree with their methods.

This country is facing a lot of pressures to refinance this year.
I am afraid Ireland would not have many resources to “pool” together if any such arrangement between governments together. There will not be many in the EU who want to give Ireland any more funding!

I just have a feeling that the government plan is a failed one and €2bn in public expenditure cuts goes no where near to balancing our books, especially considering they also said there will be no more tax increases.

The scope to make savings is not limited to pay cuts. Massive savings can be made in cutting operational budgets through dispensing with some of the more archaic policies and procedures that impinge co-operation between departments. Just cutting the costs of consultancies alone would make a huge saving as would scrapping expenses in total pending a thorough review. (I'm not joking, the amount of expenditure wasted on expenses is astronomical and largely goes uncommented when people cite the public sector wage bill).

Cutting OT and dispensation rates pending review is another option.

This combined with moderate pay cuts, and a targeted redundancy program will amount to significant savings.

Curbing operational costs, cutting expenses, outsourcing, consultancy fees, OT, increase in nominal working hours etc etc is the way to go, add to this the immediate review of the lunatic bail outs to Banks and the proposed amendments to social housing and you have truely massive savings.

As for Tax increases, they will happen, the Government are just bidding their time until they come up with the most palatable and electorally safe means of dispensing the bad news.

[bobbysands81]

1. Dan Murphy's comments above were taken completely out of context. If the paper had bothered to continue with what Dan Murphy was saying the following would also have been printed...

"It is, therefore, very much in the interests of our members that a solution is found to this crisis which can avoid such a situation developing.

Obviously, there are a great many issues to be considered in the approach to be taken to seeking to resolve the crisis.

Of course, given the intense speculation about a proposed cut in Public Servants’ pay, it has been necessary for Public Service Unions to consider our likely response in the event of such a proposal being made. The Public Services Committee of the ICTU met last week and decided that we could not and would not discuss pay cuts or disimprovements in basic pension arrangements as part of any discussions on economic recovery. Clearly, there are major economic problems and significant problems with the public finances and we are prepared, as part of an overall national approach, to discuss way in which all parts of our society might make an effort to restore our economic balance and to promote growth into the future. However, we have no intention of agreeing to actual cuts in our members’ rates of pay or basic pension arrangements."

Strong words from a normally docile Union.




2. The Govt has not put any proposal on the table to cut Public Service pay as of yet - it is all a media charade so far, driven by the Private Sector.

[Dios]

Interesting article here on using Japanese corporate methodology to trim back the public sector in Ireland... Apologies in advance for any burst blood vessels among union representatives...

An illustration of out-of-control public spending is provided by the State body, the National Consumer Agency, which was established to ensure consumers get value for money but it could well begin with itself - a chief executive who was recruited from a small insurance industry body, presumably got a huge salary hike to the current level of over €182,000 plus pension benefits. A board of 14 sets policy and after more than 3 years of operation, there isn't even a basic online price comparison service available - that of course would require a multi-million euro investment as who among the Insiders, would trust a value-for-money start-up with such a mighty task? So much for the knowledge economy and blather on innovation, when services like Facebook could be launched from a university dorm!

As for public pay, less than two years into his job, the current Dublin City Manager got a 36% hike in 2007 and his retired predecessors also got windfall pension increases of 36%. Also in October 2007, the Secretary-General of the Department of the Taoiseach, Dermot McCarthy, got a 25% hike as did his retired predecessors. McCarthy currently has the task of selling a public sector pay cut to the trade unions - - Michael Hennigan, Finfacts.

Joseph McGrath is a project manager and lean expert. He writes occasionally on public policy matters.

Ireland recorded a budget deficit of €12.7 billion for 2008 and the situation is expected to deteriorate further in 2009. The root cause of the deficit is that we have far too many overpaid public servants. The good news is that there is a way out of this crisis that will simultaneously wipe out the deficit and improve the quality of public services.

For years, the public sector has been run like a giant social welfare scheme whose beneficiaries enjoy excellent pay, pensions and working conditions. The current wasteful public sector must be dismantled and replaced with a public sector that is focused solely on providing value to its customers and the taxpayer. Here is how to do it:

Lean is a process improvement methodology developed in Japan that has a proven track record of identifying and removing waste from processes. Waste is defined as any activity that does not, in the opinion of the customer, add value. In a typical private sector company of the sort that periodically goes through cost cutting and efficiency improvement exercises, it is not unusual to find that 30-50% of the activities being undertaken are wasteful and can be eliminated. In the public sector, which has not undergone a major overhaul in its history, it is likely that 70-80% of the activities undertaken add no value. However, a conservative assumption would be that 40% of public sector activity adds no value. Eliminating this 40% can lead to a 40% headcount reduction. Thus, the annual public service pay bill of €17.1 billion can be reduced by €6.84 billion to €10.26. It is important that this exercise is lead by outside consultants. Otherwise, public servants and their unions will be able to frustrate change.

The second step is to examine the value-adding areas of the public sector and to address the issue of overstaffing. Much of the value-adding work being done by the public sector involves front line personnel such as doctors and gardai. There is no scope for large staff cuts here. However, through the application of lean principles and modern work practices, these areas can significantly improve the quality of the services they provide. In addition, the non-front line, value-adding areas could probably take a large staff cut without diminishing the quality of the services they provide. Overall, it is hardly unreasonable to assume that there is overstaffing of 10%. Eliminating this overstaffing will reduce the pay bill by a further €1.026 billion to €9.23 billion.

The third step is to bring public sector pay into line with private sector pay. The CSO recently released figures showing that annual salaries for roles in the public sector are 18% higher than salaries for equivalent roles in the private sector. The easiest way of achieving equality is to reduce the salary of every public servant by 18%. However, a fairer alternative would be an immediate 10% pay cut for all, followed by a benchmarking exercise to determine the exact amount of salary cut for each role – with some receiving cuts of more than 18% and some less. Whichever solution is adopted, the public sector pay bill will see an 18% overall reduction. Thus, the annual pay bill of €9.23 billion will be reduced by €1.66 billion to €7.57 billion.

The fourth step is to divide the remaining, value-adding activities into core and non-core. For example, it might be decided that doctors, nurses, gardai, the army, the courts, policy makers etc. are core parts of the public sector. The remainder of the roles (support staff, back office people) should be outsourced. There is no reason why functions such as accounts payable, finance, human resources, IT etc. should be done in-house by the public sector when specialist expertise and economies of scale dictate that the private sector can do them better and cheaper. Ireland is a world leader in shared services and already provides these types of services to many US multinationals. There should be no shortage of Irish companies willing to tender for this work. A conservative assumption would be that economies of scale would bring about a 10% cost saving. However, in order not to risk exaggerating the benefit of these measures, no saving has been assumed here.

Finally, the issue of public sector pensions must be dealt with. When the true annual cost of funding these pensions is taken into consideration, it becomes clear that the budget deficit is actually closer to €15 billion than €12.7 billion. This is because the State is currently under funding future public sector pension requirements by around €2.2 billion annually. Unless contributions to the National Pension Reserve Fund are increased by €2.2 billion, future generations will end up funding the retirements of the public servants whose salaries the current generation is now funding. To compound the unfairness, public sector workers will receive defined benefit pensions of up to 60% of final salary plus a tax free lump sum of 1.5 times final salary. Worst of all, unlike private sector workers, they only need to contribute a small percentage of their salaries (between 1.5% and 6.5%) to fund their pensions. The solution is for public sector workers to be treated the same as private sector workers. Their employer (the State) should provide them with a defined contribution pension and match the first 5% of their contributions. As it will be a defined contribution scheme, the State’s responsibility will end there. Assuming that uptake of the pension scheme mirrors that in the private sector, around 50% of public sector employees will take it up. Even assuming that all of these contribute 5% or more of salary, the State’s annual contribution will be €189 million. Thus, the real budget deficit is reduced by a further €2 billion.

Greatly reducing the number of public servants will have other non-salary benefits. For example, electricity, heating, and phone bills will be lower, computers and other equipment will not need to be purchased, fewer buildings will need to be rented, subsidised meals will no longer have to be provided etc. Conservatively, another €3 billion of annual cost should be eliminated through non-salary savings. One-off savings will also be made, as surplus buildings and car parking spaces can be sold off. In addition, many of the surplus public servants will be educated and capable and their entry into the private sector will provide a major boost to the economy.

In total, bringing public sector pay, pensions and working conditions into line with the private sector will, conservatively, result in annual savings of around €14.5 billion.

The budget deficit will be eliminated, the taxpayer will receive value for money and the customer will receive better public services.

[Kevin Doyle]

To be honest, the growth in public sector pay at three times the rate of the private sector since the start of benchmarking.

I'm not getting into to this again. Public Sector increased from historic lows. The use of averages in comparing Public v Private sector pay is totally flawed and does not take into account the myriad of discrepancies between the 2 sectors. There is a case for pay reduction in some areas, but it is not as large as you would think.

Those who definately need pay cuts are those at the Grade of AP and above. Serious room for pay cuts here.

, and the hiring on of over 30,000 additional public sector workers, didn't improve the quality of services very much, so dialling it back by a comparable amount will hardly do much damage..

Again, this was boosting numbers from historic lows. The OECD report clearly shows the Public Sector here is small compared to every other country measured. The improvements in the Public Sector in terms of service are real. The HSE for example has risen to number 16 in the WHO league of health services from a truely woeful 29th in less than a decade.

On the deficit, where exactly do you think the money will come from to pay the public sector if its not cut back? Drastically increased taxes?

I've stated many times where the savings can come from. Its the day to day spending of the Government that accounts for the biggest slice of the deficit. Operational budgets need to be cut, cost saving measures that where unpalatable to Unions a year ago are a damn sight more appealing now. Halt all unnecessary capital expenditure. Stop all expenses and OT. etc etc there is a long list that can be utilised in addition to moderate pay cuts and VER's.

There will also be tax increases. Of that you can be sure of.

As for the IMF, if you are reduced to a sorry enough state that you must turn to them.

I don't place any stock in the threat of IMF intervention. They will have a hard time surviving themselves, they're broke.

[Kevin Doyle]

Lets be clear here: you are talking about using organised resistance to topple a democratically elected government?

What?

I know your new here but the use of such fallacious argument tactics is viewed in a particularly dim light.

[Dios]

I'm not getting into to this again. Public Sector increased from historic lows.

And I'll just quote from an article here:

Irish public sector pay excluding pensions exceeds comparable private sector pay by 10% for top jobs to up to 30% for other grades according to research published in the Economic and Social Research Institute (ESRI) in its Winter 2008 Quarterly Economic Commentary.

In July 2000, the Public Service Benchmarking Body was established, following pressure from the trade unions, who used news of a number of dot com millionaires to claim that public sector workers were underpaid. Ministers received two payments and the average special pay increase was 9%, including for all retirees. It was possibly the greatest fraud in the history of the State (see below).

The ESRI researchers Elish Kelly, Séamus McGuinness and Philip O'Connell, say the gap between public and private sector pay in Ireland is "far higher" than in many other countries. The average wage advantage increased to 20 per cent in 2006 from less than 10 per cent in 2003 due to several pay awards, while the pay gap in the rest of Europe rarely exceeds 10 per cent. "This differential would be difficult to justify in normal economic circumstances," they say.

The researchers say that analysis of National Employment Survey (NES ) data enabled them to assess the extent of the public-sector wage premium while taking account of differences in the composition of the workforces in the two sectors.

The analysis shows that, controlling for the influence of education, experience, gender, and occupation, the public sector pay premium increased from less than 10 per cent in 2003 to over 20 per cent in 2006, following the series of pay setting rounds in the intervening years13. It should be noted that the methodology used is based on the standard approach in the international literature to the comparison of earnings and is similar to that adopted in the econometric study of the 2003 NES data prepared for the second Benchmarking report14. Furthermore, the earnings information used in the study takes account of regular bonuses and commissions. The public sector pay premium was found to apply equally to both male and female employees in 2006. In addition, the analysis suggests that in 2003 senior public sector officials, those at the top of the income distribution, earned less then their counterparts in the private sector. However, by 2006, the wage penalty for senior public servants had been reversed and replaced by a pay premium in excess of 10 per cent. The public sector advantage is even greater for those at the lower end of the income distribution, with those in the lowest public sector grades earning a premium in excess of 30 per cent compared to their private sector counterparts.

The researchers say that it is important to note that these results represent conservative estimates of the extent of the differential in compensation between public and private sector workers as they take no account of the fact that the vast majority of public sector workers are entitled to pensions index-linked to wage growth in the public sector. Furthermore, occupational pension coverage is much lower in the private sector, and many such pension schemes are not linked to wage growth. In addition, the estimates do not take account of the job security enjoyed by public sector workers.

Since 2006, additional awards were recommended under the Review Body on Higher Remuneration in the Public Sector, mainly to senior posts in 2007, although implementation of some of these rewards has been deferred.

Moreover, a number of additional awards are pending. The second Benchmarking report has recommended awards ranging from 1-15 per cent, mainly for senior public sector grades, although for the vast majority of grades no increase was recommended. Under the most recent Social Partnership pay agreement, increases of 5.5 per cent to 6 per cent across both public and private sectors have been agreed over the October 2008 to June 2010 period, with implementation scheduled to begin in September 2009.

The researchers say the extent of the discrepancy between public and private sector pay in Ireland is far higher than in many other countries: the pay gap rarely exceeds 10 per cent in European countries. This differential would be difficult to justify in normal economic circumstances.The current context of economic recession, with falling employment, growing unemployment and a crisis in the public finances, suggests that the public sector pay premium should come on the agenda for discussion with the Social Partners as a matter of urgency.

SHAM BENCHMARKING

In 2004, the former Davy Stockbrokers economist Jim O'Leary who had resigned from the first benchmarking body because it was a farce, joined the Department of Economics at Maynooth University, and published with two of his colleagues, the results of six months' rigorous and painstaking research into public-private sector pay differentials in Ireland - Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary, Summer 2004.

O'Leary and his colleagues wanted to discover whether similar people in similar employment circumstances were better or worse off working in the public than in the private sector. I[COLOR="Red"]n order to do this, they had to control for attributes like age, experience, gender and education, and also for job characteristics like occupation, type of contract and size of establishment.

As the CSO data does not permit this kind of analysis, the dataset that they had to use is one based on a large-scale survey conducted by the Economic and Social Research Institute (ESRI) and used for much of its research into poverty and inequality.[/COLOR]

The core finding was that on average, public servants earned 13% cent more than their private sector counterparts on a like-for-like basis in 2001.

The researchers discovered that the size of this margin (the public sector premium) in 2001 was not significantly different from what it had been in 1994, suggesting that pay increases in the public sector had kept pace with the private sector throughout the Celtic Tiger period.

Another discovery was that the margin by which public service workers outearned their private sector counterparts tended to be significantly larger at the bottom of the income distribution than at the top.

The first benchmarking body viewed pensions as being irrelevant in comparing public and private pay as the then Taoiseach Bertie Ahern and Finance Minister Charlie McCreevy wanted to produce a favourable end result for the public sector unions.

As for the second benchmarking report, the "more valuable pension arrangements in the public service relative to private sector arrangements," was assessed as 12% of salary, as if all private sector workers are covered.

Convenient indeed, but the majority of Irish private sector workers have no occupational pension. Besides, many of those who do, are exposed to the vagaries of the market.

That would seem to put the lie to everything you have said, and there are many more like that. The government even promised in 2002 to reduce the numbers of public sector workers by 5000 in 2002, instead we got a 30,000 increase.

There will also be tax increases. Of that you can be sure of.

No doubt.

I don't place any stock in the threat of IMF intervention. They will have a hard time surviving themselves, they're broke.

The IMF doesn't care what stock you put in them. If not them, it will be someone else. They were however merrily lending to Latvia just before the christmas.

What?

I know your new here but the use of such fallacious argument tactics is viewed in a particularly dim light.

I may be new here, but I'm not new, Kevin, far from it, sadly. I directly quoted you, and if I misunderstood the intent in your statement, I apologise. What I took from it though was that public sector unions were prepared to overthrow a democratically elected government in order to preserve their salaries. Did I pick that up wrong?