IBEC is at it again. Their latest recommendations to the nation are to cut public sector pensions and eliminate increments. Let’s take a closer look.
First, public sector pensions:
‘The Government should adjust pension entitlements for all public sector workers and “not just new recruits”, the director of industrial relations at employers’ body IBEC, Brendan McGinty, told a debate last night. He described public sector pensions as the “elephant in the room” at a time when private sector pensions were being “decimated”.’
[We’re going to assume that when IBEC says ‘adjust’ they mean ‘cut’. Adjust is such a softer word.]
Let’s do some numbers. In 2012, expenditure on public service pensions was €2.502 billion. The number of retired public sector employees was approximately 120,000 (Whole Time Equivalents). So what is the average pension? €20,787 or €399 per week. This is a decline from 2011, when the average pension was €22,424. But let’s also remember:
- This refers to Whole Time Equivalents. Therefore, the number of pensioners could be higher leading to an even lower average pension payment.
- This is an average. Unfortunately, we don’t have a median figure (that is, the payment where 50 percent receive more and 50 percent receive less). However, median figures are highly likely to be lower. So we can assume that 50 percent of recipients of public sector pensions receive even less than the average.
So IBEC wants to have a go at people who, on average, receive less than €400 a week. This is their version of ‘sharing the pain’. Of course, IBEC might say – ‘hey, pensions cost the state €2.5 billion, this is unsustainable’. Of course, this is not the case. To get an accurate cost you’d have to factor in the income tax that is being returned to the state from pensioners. Then you’d have to include the economic impact of retired people spending in the economy – the increased turnover in businesses and how that impacts on employment. Then there is the VAT and excise revenue on top of that.
When you factor all that in, you’d find that public sector pensions – already low at about 1.5 percent of GDP – would cost even less.
So, when IBEC calls for cutting public sector pensions they should answer the following questions: how much tax revenue would be lost? How much consumer spending would be lost? How many businesses would be negatively affected? And as a result, how many private sector workers in those businesses would be impacted? And after all that, how much would really be saved?
Even more perverse is IBEC’s suggestion that since private sector pensions have been ‘decimated’, we should start decimating public sector pensions. What kind of logic is this? It’s the economic equivalent to misery loves company, so let’s crowd the place. It should be noted that it wasn’t IBEC, but UNITE that has taken the Government to the European Court over their failure to protect private sector pension funds. It’s the trade union movement that has put forward proposals to boost pension coverage and income for private sector workers; not IBEC.
Second, the employers’ group calls for a suspension of increments. How much would this save? Pennies, really. The Minister for Public Expenditure and Reform informed the Dail that increments will cost approximately €75 million in 2013. If these were suspended, so would the increased tax revenue. Given that most increments go to low-average public sector workers, suspension would mean lower consumer spending. Not counting the economic impact, suspending increments would save at most €45 to €48 million and probably less. Or to put it deficit reduction terms – 0.0286 percent of GDP. That’s the worth of their proposal.
So what is it with IBEC? Why do they put forward proposals that would actually harm its own members by reducing demand in the economy? Why do they propose hitting low to average income earners – whether retired or working? Why don’t they address the real issues in our public finances such as the continuing high levels of unemployment (expected to still be above 13 percent by 2015) or the 1.2 million living in deprivation or the investment crisis?
It’s just another day at the office for IBEC.