Have public sector workers paid their full share of the cutbacks?

Godge · 19-10-2010 10:47PM #1

There is an interesting report on the Department of Finance website entitled "Analysis of Exchequer Pay and Pensions Bill 2005-2010"

Link is http://www.finance.gov.ie/viewdoc.asp?DocID=6385&CatID=45&StartDate=1+January+2010&m=p

Some of the points made include:

• the pay bill has decreased from €17,097m in 2008 to €15,092 in 2010, a decrease of
11.7% (Table V);

• receipts in respect of the Pension Related Deduction were €831m in 2009 and are

expected to be €875m in 2010;

That means that in total terms adding the 875m to the 2,005m, the total decrease in the pay bill is 2,880m, which is 2.8 bn.

The percentage of GDP in 2008 taken up by the public sector pay and pensions is 10.4% (see table II). Taking out the pensions element (accounted for 8.8% of the pay bill in 2008) leaves a total of 9.48% of GDP being spent on public service pay in 2008. (leave aside the argument of GDP vs GNP for a minute).

So apart from the income levies and cuts in child benefit, increases in medical costs that everyone in the country has faced, that report suggests that those accounting for 9.48% of GDP have delivered €2.8 bn in savings already as a combination of pay cuts, pension levy and contracts not renewed.

If the other 90% of GDP contributed at an equivalent level there would be a saving/revenue increase of €25.2 bn., more than enough to eliminate the deficit.

That would suggest that the public sector has already contributed its fair share. Such a conclusion runs counter to the impression I have got from economic commentators, newspaper editorials and boards posters.

I am not interested in comments that suggest the public sector should pay more but would like to know whether the figures in the report and/or my understanding of them stand up to scrutiny. So please don't rant about the public sector/private sector but look at the report and the figures and analyse them accordingly.

WalterMitty · 19-10-2010 10:59PM

analysis flawed on so many levels.

Godge · 19-10-2010 11:07PM

WalterMitty wrote: »

analysis flawed on so many levels.

Explain, using verifiable statistics.

P. Breathnach · 19-10-2010 11:14PM

WalterMitty wrote: »

analysis flawed on so many levels.

Wow! Such perspicience. Could you share some of your observations with us, please?

deise blue · 20-10-2010 02:49AM

WalterMitty wrote: »

analysis flawed on so many levels.

Given this detailed analysis of the report allied to supporting facts I am convinced that the Department of Finance report is pure bunkum.

fergalr · 20-10-2010 03:23AM

Godge wrote: »

There is an interesting report on the Department of Finance website entitled "Analysis of Exchequer Pay and Pensions Bill 2005-2010"

Link is http://www.finance.gov.ie/viewdoc.asp?DocID=6385&CatID=45&StartDate=1+January+2010&m=p

Some of the points made include:

•

the pay bill has decreased from €17,097m in 2008 to €15,092 in 2010, a decrease of
11.7% (Table V);

•

receipts in respect of the Pension Related Deduction were €831m in 2009 and are

expected to be €875m in 2010;

That means that in total terms adding the 875m to the 2,005m, the total decrease in the pay bill is 2,880m, which is 2.8 bn.

The percentage of GDP in 2008 taken up by the public sector pay and pensions is 10.4% (see table II). Taking out the pensions element (accounted for 8.8% of the pay bill in 2008) leaves a total of 9.48% of GDP being spent on public service pay in 2008. (leave aside the argument of GDP vs GNP for a minute).

So apart from the income levies and cuts in child benefit, increases in medical costs that everyone in the country has faced, that report suggests that those accounting for 9.48% of GDP have delivered €2.8 bn in savings already as a combination of pay cuts, pension levy and contracts not renewed.

If the other 90% of GDP contributed at an equivalent level there would be a saving/revenue increase of €25.2 bn., more than enough to eliminate the deficit.

That would suggest that the public sector has already contributed its fair share. Such a conclusion runs counter to the impression I have got from economic commentators, newspaper editorials and boards posters.

I am not interested in comments that suggest the public sector should pay more but would like to know whether the figures in the report and/or my understanding of them stand up to scrutiny. So please don't rant about the public sector/private sector but look at the report and the figures and analyse them accordingly.

Your argument seems very flawed to me, unless I'm much misunderstanding it.

By definition, the government pays the public sector wage bill.
They do not pay the private sector wage bill.

If both public sector workers and private sector workers have their wages cut by 10%, the government only saves money on the public sector workers.

But, by your logic, even though all workers, in all sectors, experience a 10% pay cut, the private sector hasn't 'done anything to help'.

You seem to be proposing that each worker should contribute the same amount. So private sector workers should pay in taxes what public sector workers pay in reduced wages.
Lets say private sector workers a priori pay 30% average tax.
So, in the situation described, on top of their 10% paycut, private sector workers should also have to each pay 40% tax instead of 30%. Thats an increase in tax of 33%.

This seems a very flawed way of looking at it.
Heres a better way of looking at it: The private sector pays for the public sector. When tax takings fall from the private sector, we would expect that the government spending decreases by the same amount.
Otherwise, clearly, the economy will be losing money.
Considering a lot of government expenditure is on salaries, salaries will probably have to be cut.

cyclopath2001 · 20-10-2010 07:01AM

fergalr wrote: »

If both public sector workers and private sector workers have their wages cut by 10%, the government only saves money on the public sector workers.

The government consumes many expensive private sector services, if private sector salaries were reduced, would this not lead to a reduction in costs to the government?

And, if salaries were reduced in the banks, would this not leave the banks more money to cover their own debts?

dan_d · 20-10-2010 08:30AM

Possibly....but the fact still stands that we are operating with a massive public service while the tax take is at a level of early 2000's. There's a serious lack of efficiency and it's overburdened with administration and management.

No more pay cuts, fine, but a few redundancies wouldn't go amiss.

Citizen_Cutback · 20-10-2010 08:32AM

Godge wrote: »

There is an interesting report on the Department of Finance website entitled "Analysis of Exchequer Pay and Pensions Bill 2005-2010"

Link is http://www.finance.gov.ie/viewdoc.asp?DocID=6385&CatID=45&StartDate=1+January+2010&m=p

Some of the points made include:

• the pay bill has decreased from €17,097m in 2008 to €15,092 in 2010, a decrease of
11.7% (Table V);

That would suggest that the public sector has already contributed its fair share. Such a conclusion runs counter to the impression I have got from economic commentators, newspaper editorials and boards posters.

Constantin Gurdgiev is one commentator you might be thinking of...

Despite being questioned and corrected on his blog, he has not changed his spin that Public Servant Pay and Pensions are €4 billion greater than they actually are this year at €15.09 billion; His figure is €19 billion!

http://trueeconomics.blogspot.com/2010/10/economics-71010-irish-government.html

Poor show Constantin.

Cookie_Monster · 20-10-2010 08:40AM

what has GDP % got to do with Public sector pay %?

The percentage of GDP in 2008 taken up by the public sector pay and pensions is 10.4%

Thats a scary figure tbh

deise blue · 20-10-2010 10:10AM

dan_d wrote: »

Possibly....but the fact still stands that we are operating with a massive public service while the tax take is at a level of early 2000's. There's a serious lack of efficiency and it's overburdened with administration and management.

No more pay cuts, fine, but a few redundancies wouldn't go amiss.

The Croke Park agreement allows for voluntary redundancies and I'm quite sure we will see thousands applying.

Permabear · 20-10-2010 10:56AM

This post has been deleted.

Citizen_Cutback · 20-10-2010 11:33AM

donegalfella wrote: »

This post has been deleted.

Some references would help your argument. Do you have any?

Count Dooku · 20-10-2010 12:01PM

Godge wrote: »

The percentage of GDP in 2008 taken up by the public sector pay and pensions is 10.4% (see table II). Taking out the pensions element (accounted for 8.8% of the pay bill in 2008) leaves a total of 9.48% of GDP being spent on public service pay in 2008. (leave aside the argument of GDP vs GNP for a minute).

Why?

Pay & Pensions Bill as a % of GNP
2005 10.8%
2006 10.5%
2007 10.8%
2008 12.1%
2009 14.1%
2010 13.4%

Tim Robbins · 20-10-2010 12:14PM

In my humble opinion it is very difficult to get information on public service wages and to be able to compare them to anything. It is also impossible to get any sort of information on the worth of some of this work.
For example, let's say some IT heads are getting 70K a year but are brilliant at their jobs and made it much more efficient for people to do tax returns. Well then they are worth their money. Or say they are useless and the private sector wouldn't even give them 20K a year then they are being over paid.

Say Gardaí are getting 50K a year but if the EU average is 55K a year or 25K a year - I don't know?

Any rational economic decision comes down to cost benefit analysis but we need a lot more information before we can decide what should be cut.

Perhaps something like bench marking needs to be brought back.

Pharaoh1 · 20-10-2010 01:27PM

Agree broadly with Tim
The issue of what has or has not been cut to date is not really relevant any longer.
The real question now should be - Are public sector workers appropriately/properly paid for the work they do.
Factors to take into account could be
- equivalent private sector pay where comparisons are available and valid
- salaries in similar sized competitor economies lets say countries like Belgium or Denmark.
- taking into account that we are much more bust than most similar sized economies logic would dictate that we should pay ourselves below their averages for the moment.
The idea that we should pay more because we have a higher cost of living is not really a runner as the differential will be a part of the "pain" as a result of our incompetent economic management.

The other relevant question is - Are public sector workers contributing an appropriate amount to the pension scheme from which they will benefit?

If we were to establish that the average employer pension contribution in the private sector is say 5%. Would a PRSI contribution (where it is paid) added to superannuation added to the pension levy plus the 5% (from the employer/taxpayer) buy a pension and gratuity which a public sector retiree is currently entitled.
The value of the state pension (where full PRSI is paid) would have to be taken into account. This actuarial calculation could be easily done for each category and a fair proposal would probably be to give the employee the option of paying the full amount necessary or opt out, take the state pension and make their own arrangements.
I suspect in the current situation a lower paid post 95 public servant may well be overpaying for their pension package as the state pension equivalent would make up a larger portion of their package (although the gratuity needs to be factored in)
Those towards the middle and the top are probably underpaying especially those that pay reduced PRSI and the semi state group of course who may pay neither full PRSI nor pension levy.

I don't believe any exercise like this will ever happen though even though it seems to be fair and reasonable. It would expose massive anomalies at the top (politicians and senior civil servants for starters) which would not be acceptable.

fergalr · 20-10-2010 01:35PM

cyclopath2001 wrote: »

If both public sector workers and private sector workers have their wages cut by 10%, the government only saves money on the public sector workers.

The government consumes many expensive private sector services, if private sector salaries were reduced, would this not lead to a reduction in costs to the government?

Yeah, sure it would, but fundamentally, the private sector jobs the government pays for are a very small % of the private and public sector.
You could then also say the government receives less tax on the salaries they pay, etc.

There are many second, third, n order effects here - its impossible to list them all - the point is that in the large, the government saves money when the public sector wages are cut, and pretty much loses money when the private sector wages are cut.

cyclopath2001 wrote: »

And, if salaries were reduced in the banks, would this not leave the banks more money to cover their own debts?

Probably...
But there's a couple of things here. First is that the banks that are effectively nationalised, are effectively public sector institutions at this point - in that the government almost directly pays their pay bill - and should be thought of as such in the context of this argument.
Secondly, you do need - at the top end at least - to make sure that reducing the salaries doesn't result in a worse job being done, and more money being lost. This isn't really what we are arguing here, but saving executive salaries, while they seem expensive, will sometimes be a false economy. Other times, it's just an exorbitant expense, but its a factor to consider.

fergalr · 20-10-2010 01:39PM

Pharaoh1 wrote: »

Agree broadly with Tim
The issue of what has or has not been cut to date is not really relevant any longer.
The real question now should be - Are public sector workers appropriately/properly paid for the work they do.

While I do agree broadly with your post, I have to jump in on this point.

Sadly, the real question now is what the state can afford to pay, rather than various people's arguments over what is appropriate or proper.

This sounds so abstract, but the government has withdrawn from the bond markets because yields are too high. The state might be fine; but we could definitely end up in a situation, in a short few years, where people wistfully look back at the already cut wages they are getting today.

Gumbo · 20-10-2010 03:53PM

Pharaoh1 wrote: »

The other relevant question is - Are public sector workers contributing an appropriate amount to the pension scheme from which they will benefit?

If we were to establish that the average employer pension contribution in the private sector is say 5%. Would a PRSI contribution (where it is paid) added to superannuation added to the pension levy plus the 5% (from the employer/taxpayer) buy a pension and gratuity which a public sector retiree is currently entitled.
The value of the state pension (where full PRSI is paid) would have to be taken into account. This actuarial calculation could be easily done for each category and a fair proposal would probably be to give the employee the option of paying the full amount necessary or opt out, take the state pension and make their own arrangements.
I suspect in the current situation a lower paid post 95 public servant may well be overpaying for their pension package as the state pension equivalent would make up a larger portion of their package (although the gratuity needs to be factored in)
Those towards the middle and the top are probably underpaying especially those that pay reduced PRSI and the semi state group of course who may pay neither full PRSI nor pension levy.

somebody posted up Microsoft Excel Data sheets a while back showing that PS employess are over paying their pension contributions up to approx 50k. from 50k onwards you are breaking even and then obviously as the salary increases the benefits increases as in underpaying their pension.

i havent got a payslip with me but my take home pay is approx 65% of my initial salary.
(current salary 38k - Ordinary Degree qualified Civil/structural engineer working as a Technician.)

jdivision · 20-10-2010 03:59PM

ESRI said public pay was 20% more than private sector, therefore no, they haven't taken enough pain already

Gumbo · 20-10-2010 04:04PM

jdivision wrote: »

ESRI said public pay was 20% more than private sector, therefore no, they haven't taken enough pain already

is that current?
have you got a link to it or to when the report/research was carried out?

P. Breathnach · 20-10-2010 04:10PM

jdivision wrote: »

ESRI said public pay was 20% more than private sector, therefore no, they haven't taken enough pain already

Since which time they have had two bites taken out of their pay amounting to 20%+.

Pharaoh1 · 20-10-2010 04:12PM

fergalr wrote: »

While I do agree broadly with your post, I have to jump in on this point.

Sadly, the real question now is what the state can afford to pay, rather than various people's arguments over what is appropriate or proper.

This sounds so abstract, but the government has withdrawn from the bond markets because yields are too high. The state might be fine; but we could definitely end up in a situation, in a short few years, where people wistfully look back at the already cut wages they are getting today.

I agree completely and did say much the same thing in my original post quote below.

"taking into account that we are much more bust than most similar sized economies logic would dictate that we should pay ourselves below their averages for the moment."
In effect we pay the salaries we can afford to pay. It may well lead to additional mortgage arrears/default but we will have to deal with that separately.

Count Dooku · 20-10-2010 04:20PM

P. Breathnach wrote: »

Since which time they have had two bites taken out of their pay amounting to 20%+.

And even after that PS payroll bill is 4 Bn more the country can afford

Pay & Pensions Bill as a % of GNP
2005 10.8%
2006 10.5%
2007 10.8%
2008 12.1%
2009 14.1%
2010 13.4%

Pharaoh1 · 20-10-2010 04:25PM

kceire wrote: »

somebody posted up Microsoft Excel Data sheets a while back showing that PS employess are over paying their pension contributions up to approx 50k. from 50k onwards you are breaking even and then obviously as the salary increases the benefits increases as in underpaying their pension.

i havent got a payslip with me but my take home pay is approx 65% of my initial salary.
(current salary 38k - Ordinary Degree qualified Civil/structural engineer working as a Technician.)

You could be right but pension levy at 50k is around 7.5% and superannuation 6.5% totalling 14% which seems a small enough percentage to make up the difference between the state pension and the PS pension especially when you include the gratuity lump sum.

cyclopath2001 · 20-10-2010 04:37PM

Count Dooku wrote: »

And even after that PS payroll bill is 4 Bn more the country can afford

But we can afford to pay off Anglo's & Irish Nationwide bond holders, right?

It seems that it's OK to break agreements with employees but you must not default on mega-rich bond-holders.

Gumbo · 20-10-2010 04:43PM

Pharaoh1 wrote: »

You could be right but pension levy at 50k is around 7.5% and superannuation 6.5% totalling 14% which seems a small enough percentage to make up the difference between the state pension and the PS pension especially when you include the gratuity lump sum.

providing you have 40 years of service and retire on 50k :

lump sum = 75,000
pension = 25,000 per year - state pension of 11,960 = 13,040 (pension from PS contributions)

averagle life after retirement = 13 years (78 years old)*

13 years x 13,040 = 169,520

so total pension payment to employee = 169,520+75,000 = 244,520

PS employee contributions = 50,000x14% = 7,000
7,000 x 40 = 280,000

state pension is already paid for by the employees PRSI contributions.
*13 years average life is a guess from me, im prepared to be shown otherwise.
PS pensions are paid out of current revenue, not from a pension pot and in the case of Dublin City Council, self funded through the Councils income. also assuming that the PS employess will pay the 14% for the 40 years, say like me, ive started in the last 2 years so came in with all the levies etc but will never have 40 years service tbh.

Tigger · 20-10-2010 04:57PM

that assumes that you were on 50,000 for 40 years
if you assume 3% pay rise every year to get to a final 50k then the payment is 165K

Gumbo · 20-10-2010 05:03PM

Tigger wrote: »

that assumes that you were on 50,000 for 40 years
if you assume 3% pay rise every year to get to a final 50k then the payment is 165K

yes it does, but the ratio's of contributions against salary stay the same.

Tigger · 20-10-2010 05:06PM

?
but the final figures are on your final salary not your salary over 40 years

sarumite · 20-10-2010 05:40PM

P. Breathnach wrote: »

Since which time they have had two bites taken out of their pay amounting to 20%+.

Closer to 10-15%.

Have public sector workers paid their full share of the cutbacks?

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