Brian Cowen (Laois-Offaly, Fianna Fail)

Public service pay must develop in a manner consistent with competitiveness, price stability and budgetary policy. Government policy on public service pay is that the public service should be in a position to attract and retain its fair share of good quality staff at all levels. It should neither lead the market nor trail it.

The current public service pay agreement under Towards 2016 expires in September 2008 and talks on a new agreement are due to commence soon. Towards 2016 provides that implementation of the public service benchmarking report will be discussed by the parties in the context of discussions on whatever arrangements on pay and conditions are to be put in place on the expiry of the current public service pay agreement.

Benchmarking has been accepted by employers and unions as a significant improvement on the old pay determination system. That was based on relativities whereby if one grade or group of public sector workers received an increase, it led to leap-frogging and catch-up claims across the public service. Experience, particularly during the 1990s, showed the demands for pay increases by reference to relativities were not sustainable.

The benchmarking body produced a report in accordance with its terms of reference. It is agreed between the Government and the trade unions that the best approach to ensuring that individual public service grades are paid appropriately is to compare all aspects of public sector jobs with their private sector equivalents.

While the current benchmarking exercise may yield little for most public servants, they have benefited significantly in recent years from the first benchmarking exercise and the general round increases under successive national agreements. The framework in place of assurances of regular benchmarking reviews of public service pay against the market, conditionality of pay increases on the basis of co-operation with change and industrial relations stability and verification mechanisms is a balanced and sensible approach to the management of public service pay.

In more difficult international economic conditions, maintaining and enhancing the competitiveness of our economy is critical, particularly for a small open economy.

The level of annual pay increases has increased from approximately 3% under the earlier national partnership deals to just over 6% in the Programme for Prosperity and Fairness and still over 4% under Sustaining Progress and Towards 2016. This is well ahead of pay developments in our main trading partners. This is not sustainable in the long term and particularly not in more adverse economic conditions.

Pay settlements must reflect the economic fundamentals. With strong economic growth and productivity increasing strongly, as we experienced over the past decade, there was scope for greater flexibility in the level of pay increases. Pay developments in the period immediately ahead must reflect the more challenging economic and competitiveness scenario that we now face and be more directly linked to changes in productivity. In recent years, Ireland's competitiveness has disimproved. We need to halt and reverse this trend. Containing costs and improving productivity is critical for the private sector, particularly in more difficult economic circumstances. The same is true of the public service. Public service pay levels can only increase at a rate that is consistent with budgetary discipline and national competitiveness. In addition, the productivity and efficiency of the public service needs to be improved on an ongoing basis.

See this speech in context