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Dublin: 19 °C Wednesday 30 July, 2014

Column: Slashing wages will hurt everybody – the case for Croke Park

It’s in everyone’s interest to keep the Croke Park deal, writes Michael Taft – private sector jobs are at stake too.

Michael Taft

With debate continuing over the future of the Croke Park Agreement, TheJournal.ie presents the argument from both points of view. To read the other side, click here.

CALLS TO RENEGOTIATE the Croke Park Agreement are really just calls to cut public sector pay.

I’m not aware of calls to renegotiate the process of reform (for example, from the current management-led process to an employee/user-led reform). No, it’s all about cutting pay. Very few making such calls reflect on why past cuts have failed to restore fiscal stability and economic growth; after all, we’ve had a 14 percent pay cut to date. Nor do they consider what the impact of further cuts will be on the economy. No evidence is put forward to justify cuts – just a demand, repeated over and over again.

We can, however, examine the evidence. The ESRI has measured the impact of cutting public sector pay by €1 billion – equivalent to an across-the-board cut of approximately 6 percent. They found that such a pay cut would wipe out half a billion euro from the domestic economy (as measured by GNP), rising to over €700 million by 2015. Given that the IMF projects that next year GNP growth will be half of what the Government is hoping for, cutting public sector pay will make this situation worse – and possibly keep the domestic economy in recession.

What impact will pay cuts have on private sector jobs? After all, cutting peoples’ pay = reduced disposable income = reduced demand = jobs at risk. The ESRI projects that a cut next year would destroy up to 4,000 jobs by 2015.

How many businesses will go out of businesses if public sector pay is cut? The ESRI estimates that consumer spending will fall by over €700 million next year and €2.5 billion over the next three years cumulatively. That’s a lot of money being taken from tills and cash registers of businesses up and down the country. How many businesses will fold as a result?

Little help, lots of damage

Falling growth, jobs lost and more businesses up against the wall – some might say it’s worth it if we can bring our public finances under control. Yet, according to the ESRI, a €1billion cut in public sector pay will – when lower growth, job losses, and reduced demand are factored in – reduce the deficit by only €479 million, less than half the headline rate. Indeed, when compared to other fiscal measures (income, property and carbon taxes; cuts in public sector employment and investment), cutting public sector pay is the least effective in reducing the deficit. The Government needs to reduce the borrowing requirement by over €11 billion by 2015. Cutting public sector pay will be of little help but will inflict a lot of damage on all of us.

The final argument is that if we don’t cut public sector pay we’ll have to cut front-line services, social protection or investment. No we don’t. The Troika doesn’t dictate the adjustments, just the deficit reduction. Yet, after €24 billion of spending cuts and tax increases the underlying day-to-day (current budget) Government deficit is getting worse.
Spending cuts, tax increases and a deteriorating day-to-deficit: we don’t need to renegotiate Croke Park. We need to renegotiate the Government’s austerity strategy. And put in place something better, something that works.

Michael Taft is Research Officer with UNITE the Union; author of the political economy blog Notes on the Front; and a member of the TASC Economists Network.

You can read more from Michael Taft here.

Column: We just can’t afford it any more – the case against Croke Park>

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