Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I welcome this opportunity to discuss the issue of new entrant pay scales for public servants. The context for the introduction of such scales by the then Government in 2011 is important. It merits reflection and repeating. In order to address the calamitous fiscal crisis at that time, nine budgetary events involving €30 billion in consolidation measures were announced between 2008 and 2014. Two thirds of the adjustment burden fell on expenditure, with the remainder on tax. Approximately half of the total adjustment took place between 2008 and 2010, with the remainder occurring in the period 2011 to 2014. A fiscal crisis of this size is without precedent in Ireland’s recorded economic history and has few modern international parallels.

Public service pay comprised 35% of total expenditure in 2008 and changes to both the numbers employed and the rates of remuneration formed an important part of Ireland’s overall fiscal consolidation. Between 2009, gross, and 2014, net, in the aftermath of the introduction of the public service pension reduction, PSPR, there was a reduction of €3.7 billion, or 21%, in the public service pay bill. Of this, €2.1 billion was delivered through financial emergency measures in the public interest, FEMPI, actions on public service pay. The balance of the savings was attributable to reductions in numbers, elimination of various public service allowances and productivity measures underpinned by public service agreements.

The then Government also introduced a series of measures as part of the national recovery plan in November 2010. These required all public servants to start on the minimum point on the scale and there was a 10% reduction in the pay of new entrants to the public service. Thankfully, through the sacrifice of our citizens, difficult decisions by successive Governments, the programme for support from our international partners and continued sustainable and prudent management of the economy by the current Administration, we have now reached a far better place. The strength of the recovery has exceeded expectations. When the labour market reached its nadir in 2012, over 340,000 jobs had been lost and the unemployment rate stood at 16%. Strong employment growth has seen nine out of every ten jobs lost during the recession recovered. The unemployment rate is now down to 5.9% and a situation of full employment is fast approaching.

While momentum in the economy remains strong, there are clouds on the horizon. The UK’s decision to exit the EU, an increase in protectionist measures and changes in other jurisdictions that affect the competitiveness of our corporate tax regime are all of particular concern to Ireland as a small, highly globalised economy. One of the keys to addressing these challenges and ensuring that we never return to the dark economic place we have left lies in making sure that our public finances continue to be managed in a prudent fashion. That is of particular importance considering that our public debt levels remain at approximately 100% when scaled by modified gross national income, GNI.

Despite this tremendous progress, we still carry major public policy overhangs as legacies from the crisis. We need look no further that our current housing situation to realise that this country and its people continue to pay a heavy price for the fiscal crisis and the economic mismanagement that contributed so significantly to the depth of that crisis. Indeed, in securing the passage of the Public Service Pay and Pensions Act 2017, which provided for the implementation of the terms of the Public Service Stability Agreement 2018-2020, the Minister for Finance and Minister for Public Expenditure and Reform, Deputy Donohoe, also provided for the unwinding of the FEMPI measures which have applied to public service pay and pensions since 2009. However, those measures will not completely unwind until July 2022. That will be 13 years after initial implementation.

This alone is testament to the depth of the fiscal crisis through which we have come and to what can happen when the public finances are not managed sustainably and prudently.

During the passage of the Public Service Pay and Pensions Act 2017 through the Oireachtas, the Government accepted an amendment to section 11 providing that, within three months of the passing of the Act, the Minister would prepare and lay before the Oireachtas a report on the cost of and a plan to deal with pay for new entrants to the public service. Also, as part of the negotiations last year which led to the Public Service Stability Agreement 2018-2020, we acknowledged issues of concern relating to the increased length of salary scale for post-2011 new entrants and we committed to an examination of the issues and to enter discussions with the parties to the agreement in regard to it. The agreement provided for an examination of remaining salary scale issues in respect of post-January 2011 recruits at entry grades would be undertaken within 12 months of the commencement of the agreement.

This was a significant body of work and staff from within the Irish Government Economic Evaluation Service were assigned to collect, collate and examine the relevant data and provide detailed point-in-time costs associated with the measure. As the Department with responsibility for reconciling the various demands made on the Exchequer, it is necessary for us, at a minimum, to quantify, evaluate and consider whether, within the resources available to us as a nation, any spending increases being advocated are sustainable and affordable and can be prioritised among the many pressing social and other needs of Irish society. That is not to say that all requests for additional expenditure are without merit. The Government appreciates that extra funding is necessary and must be committed in certain areas, for example, an increase of €1.5 billion in capital spending to provide the homes, hospitals and other infrastructure investments our society needs. What is important, however, is that additional spending proposals are carefully thought through by the Oireachtas and evaluated in advance in order that the consequences and trade-offs are known before any budgetary decisions are taken.

I emphasise that we cannot say, on the one hand, that we need to ensure the public finances are managed in a stable way and that we must not repeat the mistakes of the past, while, on the other hand, telling ourselves that we can meet every individual demand. We will not be able to meet the needs and demands of all groups. We have a public service pay agreement for three years and this is year one. We are committed to engaging with everyone in good faith. If, however, we are saying that we need to keep the public finances stable and ensure we can afford to meet the commitments we have made, we have to understand there are responsibilities which come with that. The Government is committed to discharging those responsibilities. In fact, this is exactly the approach we have taken when examining the issues of concern regarding the increased length of the salary scale for post-January 2011 entrants to the public service. This is what we agreed with unions in last year’s pay talks and this is the process that is under way.

It is worthwhile outlining the main findings of the report to the Oireachtas and I will do so now. The first finding is that there has been strong recruitment since 2011 to the estimated 237 recruitment grades across the public service, with more than 60,500 so-called new entrants, or 19% of the public service, currently working in these grades. These include 16,000 teachers, almost 5,000 special needs assistants and approximately 10,000 nurses. Actual recruitment would have been higher when allowance is made for those who were promoted from or left new entrant grades. This confirms the finding of the Public Service Pay Commission that there was no general recruitment problem and that at lower pay levels there is a substantial pay premium in favour of public servants.

The second finding is that variation in the remuneration package offered to prospective employees in line with the economic cycle is standard practice across the labour market. Within public service, entry level starting salaries have improved under collective agreements that have been progressively weighted towards lower-paid entry level employment. For example, the administrative officer scale for recruitment of graduates to the Civil Service increased by 5.4%, or €1,611, in the two years between January 2016 and January 2018.

The third finding is that the estimated cost associated with a two-point incremental adjustment for the 60,500 staff identified is significant, at approximately €200 million. Importantly, this cost is not included in the overall cost of the public service stability agreement. Work is ongoing to refine these annualised costs by grade and by sector to improve the accuracy of this estimate.

The final finding is that individual benefits would be considerable. Based on the average across all sectors, a two-point adjustment would equate to an additional €3,302. This would be on top of the pay benefits under the public service stability agreement of between 7.4% and 6.2%, or up to 10% for new entrants post 2012, which were already weighted in favour of new entrants and the lower paid.

The report to the Oireachtas makes clear the Government’s commitment to working with the parties to address these issues, in accordance with the terms of the public service pay agreement, and taking account of the significant costs involved. We started examining these issues with the parties as soon as the agreement was ratified back in October of last year. Discussions have been ongoing since then, and we met with the unions on 27 April last to discuss the report's findings. Further engagement will take place on this issue in early June.

I again thank Deputies for the opportunity to discuss these issues. I looking forward to hearing their views.

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