Ireland is no country for young men or women anymore -- Sky high taxes, lower incomes means only bad news for the young

Karl Miller, Olwen Sheedy, Sam Hopkins and Sinead Donolon have all left,
thought about leaving or are leaving Ireland to find work.(Credit: CNN)

One of the worst aspects of the financial crisis in Ireland is the way it has impacted on young people disproportionately.

By young people, I mean not just those still in college, but those in their twenties and thirties, and even forties.

These include the young couples who bought houses at the top of the boom and are now struggling to pay their sky high mortgages as their income shrivels. When they bought their dream home their pay seemed to be increasing every year; now it's shrinking, all the bonuses and overtime payments have vanished and money is getting tighter all the time.

And of course they can't sell because they're deep in negative equity, with the house worth half what they paid for it, or even less. Then there are those couples in even deeper trouble, the houses in which one or even both partners have lost their job. A recent report predicted that by this time next year, around one-fifth of all mortgages in Ireland will either be restructured or in arrears.

It's not just mortgages that are causing problems either. As the government struggles to cut spending, a lot of free stuff now has to be paid for, in areas like health and education. Meanwhile, the cost of things that are essentials, like gas, electricity, oil, transport and even food have all increased. Petrol prices have increased sharply and for many families a car is an essential, not a luxury, with kids who have to be ferried to school and jobs to get to.

And the burden of taxes is getting heavier all the time. It's not just the income tax at 41 percent on anything over $40,000 a single person earns, but on top of that you pay four percent (and your employer pays 4.5 percent) in pay related social insurance (PRSI), and then there's the new universal social charge (USC) which is seven percent.

So including the employer's PRSI, the effective tax rate on anything a single person here earns over $40,000 is 56.5 percent, not the much quoted 41 percent.  For a married couple, the income at which the marginal rate kicks in is $49,800.

All told, the income tax burden here is already very heavy. And if you have to pay for child care -- unlike other EU countries it's not subsidized here -- it can be very difficult to make ends meet.

On top of all this, many younger people here have significant borrowings (when they bought their dream home they got the plasma screen and the designer kitchen and the nice car), and making those loan repayments is also getting harder.

In many cases, the extras are being sold off. Older people tend to have pre-boom savings and have already acquired and paid for the extras that make life comfortable.

The conjuring trick of taking "social" charges separately out of pay does not fool anyone here anymore -- it's time the government here started calling it all income tax, because that's what it is.

The irony is that many people don't make use of "social insurance" anyway. They don't want to endure long waiting lists in the public health system, and so they go private and pay for treatment.

A lot of them who lose their jobs emigrate so they don't take their welfare payments. And other things like "free" school education ends up costing money because sports and books and equipment all have to be funded by the young parents.

To say that money is tight for so many younger singles and couples here is an understatement.
A survey last April by the Irish League of Credit Unions showed that up to 47 percent of Irish adults have less than $130 to spend by the end of the month once all their essential bills are paid.

Most of them are younger people.Nearly two-thirds of those questioned said they have less to spend than they did last year.

The wave of unemployment here due to the financial crisis also affects younger people much more than the older generation (those in their forties and fifties and beyond).  This is not surprising, since the younger ones may be college leavers or young workers with limited experience, whereas the older ones will often be well established in jobs or professions.   The old rule of last in, first out, also seems to be in operation.

The result of this is that most of the 40,000 plus people now emigrating from here each year are younger people. And it's not just singles, but young couples often with young children as well.

So in all kinds of ways, younger people here are getting a raw deal despite the fact that the crisis was created by the older generation, not the younger generation. And they will go on paying for the mistakes that led to the financial collapse and the bailout for years to come.

Read more: 40,000 are leaving Ireland every year new figures show

It's obviously unfair, but nothing is being done about it (like, for example, a serious program of debt forgiveness to rescue those younger couples now drowning in mortgage debt and negative equity).

All of that is only half the story, however. Where this becomes really shameful is the way the older, established section of Irish society is doing everything it can to protect its privileged position at the expense of the younger generation, no matter the consequences.

A lot of lip service has been paid here to the necessity for burden sharing to get us through the crisis but when it gets down to it, it's I'm alright Jack, and you can look after yourself.

This is happening right across the economy here. In the private sector we have seen the arrival of so called "yellow pack" workers in many companies who get lower pay and poorer conditions and pension entitlements than existing workers doing the same jobs.  

School and college leavers are taken on for periods of "work experience" but never get paid.   There are the "internships" which are paid at low rates, and when it's time for the interns to get proper pay they are let go and a new lot of interns are brought in.

Add to that the growing tendency to offer short term contracts of a year or two rather than permanent jobs and it all adds up to exploitation.

A lot of this has happened while older workers in these companies have stood back and done nothing as long as their positions, pay, and pensions have been protected.   The same thing is happening to a far greater extent in the public service, where state workers and their unions have turned their backs on new entrants.

In this column recently we mentioned the case of teachers. Recent figures show that new school teachers here are now being paid $15,000 less than new teachers who started work in 2010 (starting salary of $36,000, down from $50,000).

They will be doing exactly the same work as their colleagues but will be paid far less. In fact they are getting less than the pensions being paid to older teachers who have retired in the past few years.  Even a teacher who retires at 60 instead of 65 gets more in pension than a new teacher now joining our school system gets in pay.  

Clearly this is deeply unfair. But it's not just in teaching that this kind of stuff is going on -- it's happening across the state workforce.

And to their shame, the unions in the state sector have been a key player in this rotten compromise. Younger entrants in all areas of state services are being given lower pay and poorer conditions in a trade off that allows the older workers (all unions members of long standing) to keep their privileged pay and pensions.

Pay and pensions in the state sector are protected under the Croke Park Agreement, the now infamous deal signed by the last government in 2010 and running up to 2014 under which the state sector unions guaranteed that there would be no strikes. Under the agreement there can be no pay cuts, other than the very limited reductions already agreed at that time by the unions.

But the crucial thing about the Croke Park Agreement is that it applied only to the state workforce at that time. It did not cover new entrants into the state services.

So in return for guarantees on their own pay and pensions, the existing state workforce abandoned the new generation of state workers who would be coming in. In effect this meant that the unions had abandoned the basic principle of equal pay for equal work.

The door had been opened to a two tier system, with those on the good deals that went with the boom hanging on to what they had at the expense of the newcomers.

The Labour Party – which is part of the coalition government -- has lost all credibility on the issue of reform in the state services.  The (Labour) Minister for Public Expenditure and Reform Brendan Howlin became a laughing stock here over the past week because of his failure to implement any reform that affects the existing workforce in the state services as opposed to the sacrificial lambs of the new entrants.

He promised major reform of the system of "allowances" given to state workers -- some deserved, most simply idiotic -- which gives them extra payments to hike up their incomes for doing extra chores (like filing, or using technology) that most people in the private sector would consider a normal part of the job.

These allowances are being scrapped for new entrants, but of the 1,100 allowances in the system which benefit the older generation of state workers, Howlin managed after his review to scrap just one.

Why did this happen? Because the unions, on behalf of the established state workforce, told him to back off.

What we have, we hold. And if the new entrants don't do as well, don't blame us, they said. We're not joining a race to the bottom.

So overall, the pain of cutting back in the Irish economy is falling mainly on younger workers and their families. It's true in the private sector and even more so in the state sector.

It's no country for young men, or young women either.

We’re too good for our own good - Ireland’s image in Europe isn’t doing us any favors

Irish Finance Minister Michael Noonan (right) talks to euro group president Jean-Claude Juncker in Cyprus

Ireland's goody two shoes image in Europe is not doing us any good.  

Being the best boy in the austerity class is not getting us anywhere. That much was clear at the end of last week when our Minister for Finance Michael Noonan returned from yet another meeting with the finance ministers of Europe with his hands -- and his pockets -- empty. 

He got lots of praise, of course.  One paper here suggested that the top of his bald head must be sore from all the patronizing pats he was getting from the financial big wheels in Europe. 

Ireland again was held up at the meeting as a lesson for the other impoverished European countries in how to stick to an austerity program. Our financial betters again said we are the perfect example of a mature country quietly doing what it takes to restore budgetary discipline, cutting spending and hiking taxes.  And we're doing it without all the unpleasant smoke and riots that can be seen on the streets in Greece, and even without any of the tiresome posturing and whinging and mass marches that have been going on in Spain or Portugal or Italy.

We're the best, we were told.  We had praise heaped on us again. 

And that's fine.  But as my granny used to say, all the praise in the world won't put butter on your bread.   

We're only a couple of months away from what will probably be the most difficult budget ever faced by the Irish people.   We desperately needed a deal on our debt to cut us some slack and give people here some hope.  

But in spite of weeks of hints and half promises from Europe, we got nothing.  

Even with a deal, a very severe budget will still be necessary because we're at least a few years away from getting spending back in line with revenue.   But a deal on the impossible burden of debt that is crushing Ireland would have shown people here that there is light at the end of this very dark tunnel.  

Instead, all we are looking at this week is blackness.

What seems to be holding everything up is the attitude of Spain, which went through a property boom and bust like us and is now just as broke as we are.  

The Spanish are opposing a financial  rescue package which would turn the enormous losses in their banks into sovereign debt.   And they seem to be winning the battle. 

This is exactly the issue that has sunk Ireland.  What happened here is that our banks went belly-up a few years ago when the property market crashed, owing tens of billions to investors and bondholders. 

The money markets stopped lending to us and the EU-IMF bailout was brought in to rescue us from financial and social collapse.  

The billions we got came with a heavy interest rate and with strings attached, mainly the order from the European Central Bank that no banks would be allowed to fail, no bank debts  would be written down and no bondholders would be burned.  

Instead of putting the money directly into our banks, the EU-IMF bailout loaned the billions to the Irish state so that it could recapitalize the Irish banks, and in turn the banks would be able to repay the billions they owed to German and French banks and to other bondholders. 

Not realizing the scale of what we were facing, the Irish government had already given a blanket state guarantee on all our bank debt.   The EU-IMF bailout conditions reinforced that guarantee.   The effect  was to turn tens of billions of private banking debt into sovereign debt (debt owed by the Irish state).   

Because tax revenue here had collapsed after the property crash, our budget deficits were huge.  The Irish state was bankrupt, and on top of that the Irish taxpayer was left carrying the can for the enormous bank losses.  

The German and French banks and bondholders who had lent billions to the Irish banks to fuel the property boom here and get a slice of the action for themselves were home free.  The European Central Bank which was supposed to be regulating banking in Europe and had failed to spot the bubble in Ireland was off the hook.

They all got their money back, even though the Irish banks were bust.  The only people left hanging were the Irish taxpayers who were now lumbered with the total cost of the mess.

The cost of bailing out the Irish banks was around €64 billion, a gigantic sum for a country the size of Ireland.  The tens of billions of private bank debt which were shifted on to the Irish taxpayer is close to half of our total debt mountain, the rest being the result of our accumulated budget deficits.  

Without that extra load to carry, the Irish state might have been able to cut spending and sort out our financial crisis without having to take a bailout.  But we were forced into taking the bailout and into agreeing that the Irish state would pay back all the bank debt.   

As I have said before here, we were stitched up.  

The reason given by Europe at the time was that any bank collapse or any burning of bondholders would shatter confidence in the markets and have a domino effect across the other weak countries.  

But there's been a lot of water under the bridges in Greece, Portugal, Spain and Italy since then.  The increasingly desperate attempts in Europe to stop the spreading financial contagion led to the realization that loading up these countries with sovereign debt on top of accumulated budget debt was likely to make the situation worse, not better. 

So we have the new ESM bailout fund, due to kick in next month, which seems to be willing to muddy the water about exactly what is sovereign debt.  And we have the ECB President Mario Draghi twisting German arms to get agreement that the bank can buy bonds of countries in trouble without any limits and at much lower rates that the markets demand.

So when Spain gets into the same kind of trouble Ireland is in, a different set of rules is being applied.

The reason is that if Spain or Italy were to collapse, the euro would be finished and the European Union would be in serious trouble. 

At the EU finance ministers meeting last week, all the concentration was on the bigger problem of Spain rather than on finding a way of lessening the burden on a little country like Ireland.  So we
were ignored, apart from the few pats on Michael's shiny head.   

In a way, our good behavior in meeting all the budget targets set by the EU-IMF has worked against us.  We have also managed to get back in the bond markets ahead of schedule, even if it is on a very limited basis, and that has allowed the powers that be in Europe to think that we are doing okay and don't need to be given a break on our debt. 

Nothing could be further from the truth.  The crushing debt burden we have to service is taking billions out of here every year and will go on doing so way into the future, leaving state services cut to the bone and no money left for the investment we need to make to get our half a million unemployed back to work.

Most economists here agree that although we can muddle on for a few years, there can be no long term solution to our financial crisis without debt forgiveness or sharing. 

Apart from that, of course, there is the moral question.  Why should Irish taxpayers who played no part in the property bubble have to pay back the money lost by German and French banks and bondholders who gambled on the Irish property boom by lending billions to our banks?   They lost the bet but they still get all their money back?

Meanwhile, the Irish taxpayer is being fleeced.  Where is the justice or fairness in that? 

It's not that the EU has anything in particular against Ireland.  It's just that we were unlucky enough to be the first EU country to hit the skids, and we have been forgotten in the chaos that has ensued. 

The EU, for all its talk, is hopeless at taking action.  It puts every decision off until a crisis looms and even then it is slow. 

In the EU's view, Ireland does not need immediate fire engine intervention, so it can be left to one side for the moment while more pressing matters are dealt with. That may sound simple, but it's true. 

The only way out of this is to ditch our “best boy in the class” image and become awkward and difficult like Greece or Spain.  It's not in our nature to complain, of course. (That's what 800 years of oppression does to you!)

But the next time Noonan gets a pat on the head instead of debt relief, we should all be out on the streets. 

You don't think we're up to it?  Just wait a couple of months.  The upcoming budget in December could be the turning point. 

Scandal over public service pensions continues as IMF calls time on state workers

Taoiseach Enda Kenny and Tanaiste Eamon Gilmore. 

Over the past two weeks this column has been dealing with the scandal of state pay and pensions in Ireland.  I thought I was a voice crying in the wilderness for a while, but this weekend the issue
became the top story here and the IMF waded into the argument.

It's easy to summarize the problem.  Close to 20 percent of the national workforce here are on the state payroll, and their pay and pensions have been protected from the economic collapse during the past few years while pay and pensions for everyone else have been severely affected.

In the private sector (the businesses that make up the real economy) pay has been cut, hours are longer and any extras have been eliminated as companies across the country relentlessly cut costs in an attempt to survive the financial crisis.

Fearful of joining the almost half million out of work, employees take the deep cuts to hang on to their jobs.
To add to the misery in the private sector, the pension funds run by most companies for their staff are now on the brink of collapse.  Although the workers have been paying into the funds over the years, the investments have been decimated on the stock markets and the funds now can't pay the pensions.  

As I explained here two weeks ago, many of these pension funds will only be able to pay out a fraction of the pensions they were committed to providing.

For the workers in the state sector however -- including the teachers, police, nurses, soldiers, diplomats, politicians, college lecturers and the vast army of administrators who work in government
departments and semi-state quango organizations funded by the taxpayer -- pay and pensions are virtually untouched.  For them, as I said here last week, the boom never ended.

How come?  The state is bust, after all.  We are borrowing close to € 1 billion every month to pay the state workers their boom time level pay and pensions.

We go on doing so because the government is afraid of the unions in the state sector who threaten chaos if they have cuts imposed on them.   Around 80 percent of the people who are on the state payroll are in unions, which compares with about 20 percent of the rest of the workforce.

The state sector is the last bastion of union power in Ireland, and even though the state worker unions know the privileged position they are defending would make James Connolly spin in his grave, they go on holding the rest of the workforce in the country to ransom out of sheer greed.

A key player in this dirty game is the Labor Party, which is heavily dependent on the state unions and therefore seriously compromised in its role as part of the coalition government.    It is defending the Croke Park Agreement (CPA), the deal reached by the last government with the unions which guarantees no pay cuts for state workers between 2010 and 2014 in return for a no strike guarantee and increased efficiency in public services to cut costs.

As I pointed out here last week, the situation has led to sharply divergent views among ministers in the government, even Labor ministers.  Brendan Howlin, the Labor minister in charge of managing overall state spending, is claiming that the CPA is doing what it promised to do -- delivering change to make public services more cost efficient.   Numbers of state workers are being reduced and workers are being moved around to fill gaps.

An example would be the transfer of state workers from other areas into welfare offices to deal with the high number of unemployed people.  This kind of flexibility which is normal in the private sector is seen as a big concession in the state sector.

Instead of cutting pay and pensions to match the cuts in the private sector, the number of state sector workers is being gradually reduced to produce an overall saving in the state payroll bill.  But there is a limit to how far this can go without damaging state services to the public.

A far better way would be to maintain the number of state workers to keep up services but cut their pay and pensions.  But this is ruled out under the CPA.

Two of the biggest spending departments are health and education.   Last week in this column I was talking about a €150 million emergency cut in spending the minister for health was bringing in to reduce the €500 million overrun he is heading for by the end of the year and which the IMF has ordered us to correct without delay.  

Part of that was a cut to funding for personal assistants for seriously disabled people, which led to an all-night protest by the disabled outside the Dail (Parliament).  It was always going to be an emotive issue.

The minister caved in and the saving is now to be spread across other health areas like administration and transport.   But one can understand why the minister was taking such drastic action.

Because 80 percent of health spending goes on pay and pensions in the sector and that cannot be touched under the CPA, making savings in health spending has to mean cutbacks in frontline services.   Even for the disabled. No one in the unions mentioned that the savings required could easily be made in pay and pensions for health workers.  

And health workers, like most state employees, are actually getting an increase in pay this year.    

Education is also interesting because it is another department where over 80 percent of its huge budget goes on pay and pensions for teachers.  There has been an ongoing row about special needs assistants (SNAs), teacher's aides in classrooms who help with children who may have a mild handicap or difficulty.

Their number has been cut, which led to an outcry by parents and teachers.  Yet no one mentioned the elephant in the room -- a cut in teacher pay (teachers in Ireland are among the highest paid in Europe) could have delivered the saving needed to keep on the SNAs.

Another aspect of what is going on is also seen in education.  The CPA protects pay for existing state workers, but not new entrants in various areas.  

Recent figures show that new schoolteachers here are now being paid €11,000 less than new teachers in 2010 (starting salary of €27,000, down from €38,000).  

This is very tough on the young teachers starting their careers and the unions have been making noise about it.   But they are silent on the fact that most teachers (the older ones who have been teaching at least a few years) have their high pay completely protected by the CPA.

This is happening in other areas of the state sector as well.   The majority of state workers are protected by the CPA, and the unions ignore the plight of their younger colleagues rather than spread the impact of the needed cuts.

This is what the state sector unions here have become -- a protective clique safeguarding the pay and pensions of their existing members, the majority of whom are older and very comfortable.

This does not stop them lecturing the EU/IMF, the government and even the Irish public about how reducing our budget deficit must be made in a way that takes account of "the need to protect the vulnerable in Irish society."   The hypocrisy involved is nauseating, particularly on the part of the senior Labor Party people and the union leaders.

The furor caused a week ago by the minister for health's attempts to shave just €150 million off his €13 billion health spending this year is an indication of the scale of the problem facing the government.  If they can't save €150 million how are they going to find the €3,500 million they have to save in the budget in December, between spending cuts and tax hikes?

There is a very simple solution, of course.  I suggested it here two weeks ago.  

They should assess the effect of the crisis over the past four or five years on pay, and particularly on pensions across the private sector in Ireland by doing a survey of the top 100 companies.   Apply the same percentage reductions in pay and pensions across the state sector.

This would save several billion a year and would mean that the €3.5 billion in budget adjustment needed in the December budget for 2013 could be accomplished with far less pain for the ordinary citizen.

Matching state sector pay and pensions to the private sector averages would have an ongoing effect in the coming few years, especially in pensions.  This would help to close our budget gap much faster.  

Doing this would also mean leveling the pay and pensions playing field so that everyone here, private and state sector workers, would be sharing in the cutbacks that have to be made.  Apart from anything else, that would be fair to everyone.  

It would also prevent the seething anger that will emerge here if €3.5 billion in cuts are imposed in the December budget but pay and pensions in the state sector remain untouched.  

It would mean dumping the CPA immediately, but there is a sound justification for doing so.  Every national wage agreement here in the past included an "inability to pay" clause so that individual companies who were in trouble could avoid paying increases by showing their accounts to the unions.   The CPA has a similar clause in it, and since the Irish state is bankrupt the government certainly qualifies as an employer who is unable to pay.  

This would also mean an end to the farcical system of annual increments (pay hikes) which all state workers get.   As I said here last week, this means that state workers are getting an increase in pay this year while workers in the private sector face ongoing cuts.

Both the EU and the IMF have indicated that they want the government to do something about the CPA now because we can't afford to wait until it runs out in 2014.   Instead of confronting the unions and hauling them into the real world, however, Taoiseach (Prime Minister) Enda Kenny and Tanaiste (Deputy Leader) Eamon Gilmore both stated over the weekend that the CPA must be allowed to run its course.  

But what would you expect?  They're on the state payroll as well.  

Ireland’s state pensions and pay safe as private sector funds go down the toilet

Brendan Howlin (Mark Stedman / Photocall Ireland)

Last week in this column we were looking at the outrageous situation that is now emerging in Ireland over pensions.

To put it simply, anyone who works for the state here has a guaranteed pension.   Anyone who works for a private company has a pension that is going down the toilet unless they are very lucky.

And right on cue, within a day of me writing the column, yet another major Irish company announced that its pension fund was in deep trouble. Arnotts, the Bloomingdale’s of Dublin, is in the process of shutting down its defined benefit pension fund.  

Somewhere around 80 percent of defined benefit pension funds in private sector companies in Ireland are now in deficit.  The accumulated funds, into which the employees have been paying pension contributions over the years, have been so decimated by the financial crash that they won't be able to make their pension payments at expected levels (usually around half final salary). 

Many people will end up getting half of that, or even less.  Some will end up with virtually nothing.

Meanwhile, the people who work for the state will be paid their full pensions and the state will borrow and tax the rest of us to enable them to do so. 

The difference is that state pensions are paid out of current revenue whereas private pensions are paid out of the returns from investment funds, most of which are now in negative territory. 

You don't hear much about this because the university academics who are always writing in the papers here about aspects of our economic meltdown are strangely silent on this issue. 

Could the fact that university teachers, like all other teachers here, are paid by the state and therefore will be getting their big state pensions guaranteed for life have anything to do with their silence?
Perish the thought. 

It's not just pensions for state workers that is an emerging issue here now, however.  Pay is a big issue as well. 

Both pay and pensions in the state sector -- and there are close to 400,000 people on the state payroll here, or close to 20 percent of the workforce  -- have managed to continue on as though the economic crisis in Ireland had never happened, even though average pay for state workers here is among the highest in Europe.   

Pay and pensions for state workers have been squeezed ever so slightly over the past two years.  In comparison to the carnage that has happened in the private sector, however, it's merely a token. 

Pay in the state sector is protected under the Croke Park Agreement 2010 to 2014, the deal the last government did with the unions to avoid strikes. Under the agreement there can be no pay cuts.

In effect, what this has meant is that new entrants into the state service now get lower pay and poorer pensions, but all the existing state workers are protected from any pay or pension cuts and so have been able to ignore the recession.

The only way the government has been able to trim the state pay bill is by cutting employee numbers -- and that has only been partly successful because it triggers the high pensions.  It also, of course, reduces state services for the public but, hey, who cares about that? 

Meanwhile, state revenue is way down as the economy continues to struggle.  But state pay is not dependent on revenue. Like pensions for state workers it comes out of tax, and if there isn't enough tax revenue, it comes out of borrowing that we will all ultimately have to pay back. 

Over the past three or four years, many workers in private companies here have been hit by the desperate attempts of their companies to survive.   They have taken pay cuts, they work longer hours, don't get overtime pay and so on.   Any perks or extras that were there have been whittled away. 

And at the same time, of course, they are being hit by extra taxes and cuts in public services or new charges as the government struggles to meet the annual deficit targets set by the EU/IMF.

The result of all this is a growing anger in the private sector at the fact that state sector workers have been able to avoid sharing the financial pain by flexing their union muscle.

Just last week, for example, a statistic emerged that is likely to further enrage private sector workers.
So far in 2012, average weekly earnings in the public sector have increased by 2.8 percent. 

Yes, you read that right.  Pay for state workers INCREASED this year, even though the state is bust.
This happened because pay increments -- automatic pay increases based on length of service -- kicked in. 

It also emerged that the cuts that were supposed to be coming in the "allowances" that many state workers get were not going to be implemented. These are extra payments for all kinds of things like filing paper records to using new technology (computers!) to eating lunch at your desk!

There are literally hundreds of these allowances, some justified, most just ridiculous.  Payments of this kind have vanished in the private sector, but they are alive and well in our Dickensian state services. 

Public Expenditure Minister Brendan Howlin had committed himself to getting rid of them. But last week, in yet another humiliating climbdown, he caved in to the unions who are insisting they are an integral part of pay and therefore, under the Croke Park Agreement, cannot be touched.

All this adds up to such an outrageous situation that it's almost funny.  But it's far from funny.  In fact it's tragic.  Because the inability of this government to face up to pay and pensions reform in our huge state sector has implications elsewhere that are heartbreaking. 

The fact is that if savings cannot be made on the state payroll bill, they have to be made elsewhere.  As you know, we have to reduce our budget deficit by another €3.5 billion next year under the terms of our EU/IMF bailout deal.  That has to mean major cuts in state spending, and the fact is that most state spending goes on pay and pensions to state workers.

But if we can't cut pay and pensions for state workers, what does the government do?  The only thing they can do is cut services to the public.

Let's look at health, one of the biggest spending government departments here.  Around 80 percent of spending on our health service goes on pay and pensions. It was heading for a €500 million overrun in spending for this year until the IMF stepped in a few weeks back and told the government to do something about it.

The (Fine Gael) Minister for Health James Reilly pointed out that saving money was very difficult when 80 percent of spending cannot be touched because it is pay and pensions.  He bluntly said we had to face up to this, leading to a public argument with Labor’s Howlin and predictions that the coalition government might collapse.

The Health Service announced a package of immediate cuts adding up to more than €100 million.
None of this was in pay to state workers. But around €2 million of it was cuts in the financial assistance given to around  200 carers (ordinary people who look after disabled relatives at home -- typically mentally handicapped children or old folk with Alzheimers).

That's the level we are at here.  The refusal of the state sector unions to accept any cuts in pay has real consequences for ordinary people here who don't have any power to defend themselves against cuts.  

The incremental pay increases for state workers I was talking about above, for example, will cost around €200 million next year. That would pay for a lot of the overrun in the health budget without having to cut services to vulnerable people. 

But the state worker unions won't agree to that, of course.  And because the Labor Party is so dependent on these unions, it won't do anything about it in government.  Instead of being called the minister for public expenditure, Howlin should be called the minister for caving into the unions. 

Of course it doesn't take emotive examples like the cuts to home carers to make this argument.  The fact that pay in the private sector has been falling sharply in the past few years and pensions are in crisis alone should be enough to justify major cuts in pay and pensions in the state sector, particularly at the middle to higher end.  Equity across the Irish work force demands that.

Add to that the fact that the tax revenue which is supposed to fund state pay and pensions has collapsed and the issue is beyond argument.  In the private sector if companies don't have the money they make pay cuts and close down pensions because if they don't, they go bankrupt.   It's that simple -- if they don't have the money, they can't pay.

In the parallel universe of the state sector, however, if the government doesn't have the money it borrows rather than make any cuts in pay or pensions.

Meanwhile, there are huge cuts in state services and big extra taxes on the way in the December budget to find the €3.5 billion reduction in the deficit we have to make next year.  That will impact on all kinds of state services for the vulnerable groups who don't have the political muscle to fight back.   But pay and pensions for state workers will carry on as though we are still in the middle of the
boom. 

Howlin's full title, by the way, is minister for public expenditure and reform. That's right -- REFORM. Don't laugh.