Monday, 14 December 2009

Oh, for the good ol' days

Michael Taft: With public sector pay and social welfare cuts, with the Minister announcing a ‘national downward adjustment in wages’ (that’s pay cuts across the economy), and with the Government now sizing up public enterprise (which isn’t part of the Exchequer pay bill), it’s informative to look back at the previous ‘tough budget’ days – 1987 to 1989. What happened then?

Between 1986 and 1989:

Public sector wages rose by approximately 10 percent during that three-year austerity period – or above 3 percent per year. Between 1988 and 1989, public sector wages grew by 4.9 percent in one year alone.

General social welfare rates rose by even more – by more than 10 percent, or nearly 4 percent annually. But this masked targeted increases for the lowest income groups. For instance, those on long-term unemployment assistance saw their social welfare income grow by 24 percent in the two years between 1987 and 1989.

Private sector wages grew as well. The average industrial wage grew by 14 percent, or nearly 5 percent annually.

This was a period of high debt, high budget deficits and high unemployment. Of course, this was also a period of inflation, unlike today. But the Government tried a two-hander – it kept public sector wages and social welfare rates growing, while reducing taxation to ensure that net income grew in real terms; mostly with success.

And it paid off. Between 1986 and 1989, consumer spending increased by over 21 percent. Compare that to today’s collapse of 10 percent between 2008 and 2010 – more than ten times the rate of collapse in the Eurozone.

Back then, this increased consumer spending growth contributed to a growing economy. Today, wage and welfare cuts are contributing to a deflating economy.

I’d like to think that, even at this late stage, the Minister for Finance might take note. That’s the optimist in me. But with this government and its deflationary strategies – a lot done, a lot more to do.


Paul Hunt said...


It is regrettable, but, perhaps, not surprising, that the Government's focus has switched to pay levels in the semi-states. As you have pointed out previously, even substantial percentage reductions in pay levels in the ESB and BGE would have a negligible impact on final electricity and gas prices.

However, I expect the unions, in defence of current pay levels, will stand shoulder-to-shoulder with the boards and managements of these semi-states to oppose any reform or restructuring that would curtail their empire-buidling at consumers' expense, ensure more efficient financing of their core activities, reduce the net indebtedness of the State and reduce final electricity and gas prices - without damaging the existing terms and conditions of employment.

Can't see how this is considered progressive.

Michael Taft said...

Paul - I don't quite understand what you don't see as progressive? The fact that these things might happen - a fact that is unsubstantiated and, for the moment, only exists as an unverifiable assettion? Or merely your expectation? We shouldn't always think that our expectations are in accord with how things are.

That's why I went to the actual budget statements of which I have hard copies and have not been able to link to (though some of the information can be accessed by the CSO Database Direct) and looked up the facts. In that way lies a more productive debate.

Paul Hunt said...


I'm confused. What facts did you look up? Did you see that within living memory - and while confronted with a huge demand for network investment in the last decade - the State did not investment one red cent directly in these businesses? Or that the ESB has relied on excessively high network revenues awarded by the CER to finance investment while rationing its access to borrowings to finance its empire-building? Or that BGE, in a similar fashion, is using the unearned revenues awarded by the CER to finance expansion of its non-core business in a headlong manner - which has led to its downgrading by Standard and Poor?

Paul Hunt said...

And Michael,

As to my expectations, I'm just putting them out there in the vague and naive hope that I'll be proved wrong.

Michael Taft said...

Paul - anyone who attempts to extrapolate from today's events to project the future had better expect to be wrong once in a while. So I, a real sinner this respect, will not be throwing any stones in case you might be wrong.

But one way we can both be right is to sign up to the ATGWU's analysis (now its part of UNITE) and support their call for a liberl market where the market itself dictates the price and where the Regulator only prevents abuse of market by incumbents or large players. We can both have our cake - you can strike a blow for market-led price setting and I can be content that once more the trade union movement has been proven . . . right

Paul Hunt said...


I'm not throwing any stones either..there's too much glass around...and it's not a question of being right; it's a search to find the path to the best outcome in the public interest.

If the risk of market abuse were the principal concern, the Competition Authority could be empowered and the CER dispensed with. However, the CER is required, at the very least, to regulate network tariffs and revenues. In contrast to network regulators in most jurisdictions - who seek to keep tariffs and revenues at efficient levels, it is striving to keep these at a level that will allow the ESB and BGE to finance their integrated businesses and empire-building without recourse to the Exchequer. This imposes one unnecessary burden on all households and businesses. The excessive investment in gas interconnection is another and the additional cost of maintaining the fiction of a competitive electricity market on the island of Ireland completes the list. All in all these probably amount to €400 million a year in additional and unjustifiable costs.

Successive governments with the tacit co-operation of the CER, the Department, the ESB and BGE have facilated this on-going gouging of househlds and businesses. The cruel irony is that the current government - and the line minister - will pretend that this isn't happening and will target the perceived "excessive" pay levels in these "profitable" businesses while blithely ignoring the fact that the extent of profitability is primarily determined by the CER - which has subverted regulation to implement government - really ESB - policy.

The unions will be compelled to defend what many of the public will see as indefensibly high pay, while those who are the real villains will stake their claim to be acting in the interests of equity and in the public interest. Perhaps it's time for the unions to highlight the damage being done by the real culprits. Protecting the ESB as integrated operations rapidly expanding their empires at consumers' expense is no longer sustainable. And when the public discover the extent of this deception - on top of the banking fiasco - their fury will know bounds.

Paul Hunt said...


In the last sentence I intended "know no bounds".

I also guess I'm ignoring the fact that you do not recognise the reality I describe. However, I sense that more and more people are become aware of this. This kind of consumer-gouging can continue for a long period of time, but, eventually the dam breaks. And it won't be very pleasant to be sitting downstream of this particular dam.