Public Finances

Drawing Lessons from the Public Sector Pay Talks

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With the public sector pay negotiations getting underway, it is timely to step back from the details and look at the broader landscape.  For it is clear:  if the wage structure in the overall economy mirrored the wage structure in the public sector, we would have a more prosperous economy and society; the recession wouldn’t have been so hard, the recovery wouldn’t have been so delayed, and the social deficits arising out of inequality would not be so endemic. 

While there is much focus on the private-public wage differential, there is less attention paid to the distribution of wages from the bottom to the top – which is the key to long-term sustainable growth and better social outcomes.  Let’s have a quick look at the former first.

The CSO has done exceptional and detailed work on comparing private and public sector pay.  The lazy comparison is to compare the headline average private and public sector pay.  However, this comes up against the like-for-like dilemma.  For instance, there are no hospitality workers in the public sector; there are no Gardai in the private sector.  Without a like-for-like comparison you get all sorts of numbers that don’t tell you much.

The CSO has compensated for that – comparing professions, age, duration of employment, size of enterprise, educational qualifications.  When they do that, they come to some interesting conclusions.


Among this grouping – which makes up the overwhelming majority of public sector workers – the ‘premium’ (i.e. the additional amount public sector workers above private sector workers) is a little more than one percent higher.  On a like-for-like basis, public sector workers earn fractionally more than private sector workers. 

What is more interesting is the gender difference.  Men in the public sector actually earn less than males in the private sector – two percent less.  However, women in the public sector earn five percent more than their private sector counterparts on a like-for-like basis.  And this is a good thing when one considers that women still face pay (and other types of) discrimination in the workplace.   If there was less gender discrimination in the private sector, the overall public sector premium would probably turn negative.

Just one more word:  This data comes from the CSO.  Since 2010 there have been small wage movements.  Between 2010 and 2014 (4th quarter):

  • Increase in private sector weekly earnings:  2.3%
  • Increase in public sector weekly earnings: (-0.7%)

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Racing Public Transport to the Bottom

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The decision by the National Transport Authority (NTA) to franchise out 10 percent of Dublin Bus and Bus Eireann routes for private tendering, which could cause industrial disruption, signals the start of the race-to-the-bottom in the public transport sector.

One of the more interesting aspects is that the NTA did not model their proposals, did not produce a business impact-assessment, did not undertake a cost-benefit analysis to justify the need for, or benefits from for franchising.  Now just think on that for a moment.  If a private sector company decided it was going to franchise or outsource 10 percent of its business, there would be cost-benefit analyses and business –impact assessments all over the place – upsides, downsides, alternatives.  Any senior management attempting to railroad such a franchise initiative through without such analyses would be clearing out their desks by noon.

What the NTA did do was commission Ernst & Young (E&Y) to provide an analysis.  And in keeping with that time-honoured tradition of providing the conclusion that the commissioning agency desires, E&Y did not disappoint (just as they didn’t disappoint Anglo-Irish Bank).  So what was E&Y’s main argument?  That franchising delivers efficiencies and cost reductions.  What did they base this on?  One academic study.

The OECD’s Privatisation and Regulation of Urban Transit Systems which E&Y relied on is certainly a comprehensive study, gathering evidence from a range of countries that purport to show the efficiency of privatisation of public transport systems.  The problem with this approach is that you can find academic studies producing a number of conflicting and contradictory conclusions over the same proposition.

For instance, the OECD study claimed that in Sweden between 1987 and 1993, following privatisation, total bus transport costs fell by 13 percent.  However, a more recent study found there is no evidence that the Swedish model of competitive tendering has reduced costs. Rather, the cost per passenger trip increased well above the rate of inflation while efficiency levels fell by over 30 percent.  This study was available to E&Y; they decided not to present this information.

Or how about this: a wide ranging international study of bus services covered 73 cities with different types of bus operators in Europe, North America, Latin America Asia and the Middle East.   It found no significant difference in efficiency between public or private operators:

‘Statistical tests do not show any significance as regards relationship between efficiency and the type of operator….The efficient cities … are spread over different continents and public administration styles – Anglo-Saxon, Nordic and bureaucratic – and they are not concentrated in any specific type of operator.’

I could go on an on – but you get the point.  Pull out an academic study that supports your preconceived position, claim this is what the ‘experts’ find, and ignore all other studies and experts who show something different – that approach hardly instils confidence.

Actually, E&Y gave the game away in a wonderful paragraph:

‘The key advantages associated with a move . . .  to competitive tendering stem from elementary economic theory in relation to the effects of competitive pressures and market discipline. In essence, by putting the contract out to tender, market forces are brought to bear to reveal the most economically efficient provider, thereby leading to lower costs and – all things equal – a reduced requirement for subvention.’

There are two things here:  first, is ‘elementary economic theory’.  There you have it – ‘my ancient neo-classical economics professor said competition is best, so let’s privatise public transport – and ,hey, why not primary education . . . ‘  Never mind that this elementary economic theory is highly disputed – especially in public services;  if you repeat it enough times you don’t have to bother with evidence or facts.

No wonder E&Y didn’t include the new wave sweeping through Europe – re-municipalisation of transport systems and public services in general.  Local /regional governments – Germany, France, UK to name some – that had previously privatised their public transport are taking them into public control because of poor service and high fares.  These places tried elementary economic theory – it didn’t work out.

But it’s the ‘reduce subvention’ argument that is the stunner.

 ‘A comparative analysis of subvention levels across Europe indicated that levels of public transport subvention vary between 35 and 60 percent of revenue. When all State interventions are taken into account, the level of subvention to Dublin Bus is at the upper end of the range.’

This is an outrageous assertion.  The fact is that Dublin has a rock-bottom level of public subsidy.

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Apple Deal is ‘Tip of Tax-Dodging Iceberg’

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Press Release from Attac Ireland

Ireland’s deal with Apple, branded ‘illegal’ in a preliminary judgment by the European Commission, is just the tip of the iceberg when it comes to tax-dodging by corporations here – with full cooperation from the State.

So says Attac Ireland, the Irish branch of the global activist group that campaigns for financial justice, including shutting down tax havens and taxing transactions.

Findings from the European Commission suggest that the State cut a special tax deal with Apple in return for job creation in Ireland by the multinational corporation.

“While the jobs created are relatively few, the loss in revenue to the Irish state is enormous,” Marie Moran of Attac Ireland said.

Globally Apple has $54.4 billion in offshore profits that have been barely taxed at all, thanks in part to a complex arrangement of Irish subsidiaries, known as the ‘Double-Irish’.

“Under Irish law, if the Irish subsidiary is controlled by managers who meet outside of Ireland, then it is treated for tax purposes as if it is a non-Irish company,” Conor McCabe of Attac Ireland explained.

“Companies such as Apple and Google, as well as pharmaceuticals, assign patent rights to these subsidiaries, which then charge the main Irish company a royalty fee for using these patents.” McCabe continued. “Under Irish tax law, royalty payments are tax-deductible. In effect, these companies charge themselves for using their own products, and then use that charge as a tax write-off. This is the Double-Irish.”

Marie Moran noted that while international attention is fixed on the case of Apple, the practice “has implications for a very large number of corporations based in Ireland for tax purposes. In fact, according to the Revenue Commissioner’s own reporting, the majority of companies based in Ireland pay corporation tax far below the headline rate of 12.5%, with some corporations paying no tax at all.”

“This arrangement is a form of corporate welfare that is not only potentially illegal but deeply anti-social,” Harry Browne of Attac Ireland added. “At a time when Irish citizens are bailing out the losses of private banks, and have faced cuts to social welfare, the State is complicit in measures that shore up the enormous wealth of the corporate sector, and erode social fabric and infrastructure.”

As part of its campaign for financial justice, the European Attac Network is calling for a global taxation for corporations, ‘unitary taxation’. This means that large corporations would be taxed as a single entity on the basis of a joint report of the activities and profits of all subsidiaries worldwide.

Under unitary taxation, profits would be split by a levy allocated to those countries, for example, based on the variable wage payments, fixed assets and sales. This measure would ensure that corporations cannot avoid tax payments through complex transfer pricing and other arrangements.

In addition to calling for unitary taxation, Attac Ireland calls for an immediate investigation into the legality of Irish tax arrangements, and a commitment from the Irish government to close down the socially costly and morally bankrupt ‘double Irish’ loophole.

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The O’Leary-isation of the Public Sector

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At the Reform Alliance national chit-chat Ed Walsh popped up to talk about what the Health Services need.  You might remember Ed Walsh – former President of Limerick University and the one who spread nonsense about the number of ‘welfare-tourists’ in Ballyconnell (you can read it about here and here).

Anyway, he made two calls at the weekend: 

Mr Walsh called for greater privatisation of the health service, with other speakers calling for the “O’Leary-isation” of the sector to achieve efficiencies and better management.  Mr Walsh also said it took Ryanair’s Michael O’Leary to make Aer Lingus more competitive and efficient, and said a further €3 billion health cuts are needed.

Let’s deal with the latter point first – the call for a further €3 billion in health cuts.  Since the start of the crisis, Health expenditure has been cut by 12.6 percent, with the Government pencilling in another 2.6 percent cut this year.

So Ed, seeing that the health budget has been cut by over 15 percent, is still not happy.  He wants to cut another €3 billion out of the health budget.  That would mean additional cuts of 22 percent.  Sure, what’s another round of even harsher cuts?

But Ed has an idea:  the  “O’Leary-isation” of the health services.  Now I’m not going to even try to summarise the ‘better’ management of Ryanair.  Acres of newsprint and websites have been devoted to Ryanair’s organisational culture.  But this is a good encapsulation:

‘A former member of the cabin crew for Ryanair has blown the whistle on the working conditions at the budget airline company . . .Sophie Growcoot revealed the details of her employment contract with the company Crewlink, which acts as a contractor for Ryanair.

[She] explained that Crewlink forced her to take three months of compulsory unpaid leave a year during the winter months, when air traffic is slower. During that period of leave, the contract forbid her from taking additional employment yet provided no compensation.

Other grievances Growcoot listed included making her pay about $540 for her uniform and another approximately $2,700 for a required safety course. They also only paid her for the hours she was “in the air,” which didn’t include pre-flight briefings, turnaround time between flights, sales meetings or time on the ground resulting from delays or flight cancellations. In addition to the restrictions on when payment was received, the salary was only about $20 an hour without contractual review for three years.

Ryanair paid for only four days of work a week, though on the fifth day, Growcoot was expected to be on call to arrive within an hour of being notified, and these standby days were unpaid unless she was actually called in.

Growcoot recounted an incident when she was on standby and received a call to come in at 4 a.m. to work on a flight departing from Liverpool to Dublin. She paid about $15 for a taxi to the airport because public transportation wasn’t running at that hour. When she arrived, she was informed that the flight had been cancelled because too few passengers were booked on it, information that would have been available to the airline prior to calling Growcoot in. She claims she was then sent home without payment or so much as an apology.’

This is not necessarily the worst case (but it’s pretty bad); it’s just that this found its way into the House of Commons.  I leave you to imagine how our health services could be reconfigured into the Ryanair way.

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Why Public Investment is Falling

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The level of public investment is falling in most of the advanced industrialised economies including Britain. The chart below appeared in the Financial Times and has attracted some publicity because it shows this decline in the US in stark terms.


The difference between gross government investment and net government investment is accounted for by depreciation. All investment is subject to depreciation over time. This deducts from the level of gross investment. In the US net government investment (after depreciation) has fallen from 4% of GDP close to 1% of GDP.

It is set to fall further. The chart below also appeared in the FT piece but was less remarked. It shows the various Budget proposals from the Republican and Democrat parties in Congress as well as the Obama proposals. In all cases the Budget plans are to maintain a trend decline in public investment (excluding defence spending) with just one minority proposal for a temporary increase in investment.


Both the British government and the US government have talked a great deal about the need for greater investment in infrastructure and greater public investment.

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Stop the Presses! Cutting Public Sector Employment Actually Increases the Debt

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Well, well, well.  You know that policy of reducing the number of public sector employees?   Nurses, Gardai, civil servants, local authority workers?   The Government trumpets the success of this downsizing:  since late 2008, public sector numbers have fallen by nearly 30,000.  This has saved, according to Ministers, a lot of money:  the Exchequer pay bill (excluding pensions) has fallen by €5 billion; though some of this is due to pay cuts.  Leave aside the impact on public services – fewer people offering services with less resources; just focus on the fiscal side of things.  It would appear that public sector downsizing is successful.

There’s just one catch:  it is actually driving up the debt.

Readers of this blog will be familiar with the multipliers that the ESRI has produced in the past – estimating the impact of different fiscal measures (tax increases, spending cuts) on the economy, employment and public finances.  Now the ESRI has produced their third impact study:  ‘The HERMES-13 macroeconomic model of the Irish economy’.  In many respects, they confirm their previous results.  But they add a few new wrinkles.  One of them is the impact on the general government debt.  And when it comes to reducing the number of public sector employees, they found that doing such a thing actually increases the debt.

First, let’s go through their numbers.

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AlJazeera English: Firms enjoy tax haven in bankrupt Ireland

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A recent AlJazeera English report called Firms enjoy tax haven in bankrupt Ireland which uses a short excerpt from the recent Anarchist Bookfair IFSC walk tour.

Ireland is one of the country’s that’s been hardest hit by Europe’s debt crisis.But amid the austerity, billions of dollars are still flowing in and out of the economy.The problem for Ireland is that it is not collecting much of a share of the money. Laurence Lee reports from Dublin.

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The War on Wages Spreads to Social Protection Payments


This post originally appeared on Unite the Union’s Croke Park Report blog today. It is a follow-up to the previous post War on Wages.

Francis Byrne of OPEN made an excellent point in a tweet regarding the previous post on the war on wages:

‘Which will also of course inevitably provide a rationale for reducing weekly SW (social welfare) payments.’

This is a crucial point. Cutting wages hits social protection recipients – unemployed, old age, single parents, the invalid and sick – in two ways.

First, there is a reduction in tax revenue. In the private sector when pay is cut by €100, the state loses nearly €42 ((nearly €63 if the employee is in top tax rate). In the public sector the loss to the state is even higher given the pension levy and pension contributions. This leaves the Government with less revenue and, so, puts pressure on spending.

Second, wage cuts can drive down workers income towards social protection levels. Using the ‘incentive-to-work‘ argument, some will argue that social protection must be cut so that work ‘pays’.

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PPP Wealth Machine: UK and Global trends in trading project ownership

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A UK PPP Equity Database and a full report on Public Private Partnership is now launched. 

High profits and annual returns

The average annual return on the sale of equity in UK PPP project companies was 29% between 1998-2012 – twice the 12%-15% rate of return in PPP business cases at financial close of projects.

Twelve PPP projects had an annual rate of return of over 100% and another 25 had an annual rate of return of between 50%-100%. PPP profits remain unregulated with no profit sharing with the public sector. The excess profit could be £2.65bn, all of which benefits private sector companies.

Unprecedented scale

Equity in 716 PFI/PPP projects (includes multiple transactions in some projects) has been sold in 281 UK transactions worth £5.6bn since 1998. Health and Education PPP projects account for over 60% PPP equity sales between 1998-2012.

Why ownership and control matter

The sale of PPP equity provides new opportunities for profiteering, can invalidate value for money, increases offshore tax avoidance, erodes democratic accountability, increases secrecy and trading of publicly financed assets with significant negative consequences for the future of public services and the welfare state.

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The Unemployment Crisis: A Modest 0.7% Response

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Even the Government admits their policies are having little effect on job creation.  They expect unemployment to remain at 13 percent by 2015, a fall of only one percentage point since they took office.  The number of people at work will only grow by 12,000 over the lifetime of this Government. Truly, we are into a period of medium-term stagnation.

A number of analysts have rightly called for a sustained and substantial programme of investment.  This would boost growth in the medium-term while putting people back to work in the short-term.  But it cannot, alone, fill the jobs gap – especially for those seeking to participate in the service sectors of the economy.  There needs to be complementary strategies.

David Begg, General Secretary of ICTU, recently provided one of them. Speaking at the TEEU annual conference he said:

‘I would say that ultimately the State must be willing to contemplate being an employer of last resort through local authorities or social employment. The lessons of the Great Depression may have been lost but they are as valid in social terms now as they were in the 1930s. No country, no society can afford to regard so many of its unemployed citizens as expendable.’

The state as Employer of Last Resort (ELR) – that’s a considerable intervention.  The concept is simple:  during periods of enforced unemployment, where the private markets cannot employ people who want to work, the state should employ people until sufficient job creation commences.

An ELR programme would employ people through the mainstream public sector, local authorities, or community, voluntary and non-profit organisations on socially beneficial projects.  There are a number of questions over how this would work.  I will focus on two and, in so doing, start the work of outlining an ELR programme.

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Budget 2013: November 24th is a chance to make our voices heard

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Michael O’Reilly: On December 5th, the Government is set to introduce its second austerity budget – and the sixth austerity budget since the onset of the crisis. €3.5 billion more will be sucked out of the economy, on top of the €25 billion already withdrawn since the end of 2008. Once again, all the signs are that low and middle income groups will bear the brunt of increased taxation and reduced expenditure. And that means that domestic demand will continue its downward spiral – putting more businesses under pressure and throwing more people onto the dole queues.

Budgets are about political choices. In a democracy, political choices are dictated by public opinion – and public opinion needs to be mobilised and vocalised. That is why the Dublin Council of Trade Unions, together with other civil society groups, is asking people to come out on Saturday November 24th and issue a simple demand: No more cuts in 2013.

Today marks the start of a 30-day countdown to the march. During this countdown, we will be publishing ’30 reasons to march’ – one each day until November 24th. There are, of course, many more and we are inviting individuals and groups to visit our Facebook page and leave their own ‘reasons to march’.

Communities up and down the country see the economic and social consequences of current economic policy every day. They know that austerity is killing the patient – and that more austerity will not produce a cure.

Domestic demand has collapsed. Five businesses closed down each day in 2011 – and this year’s figures are likely to be worse. 300,000 are unemployed, and many more are underemployed. Over 1.8 million people are left with less than €100 at the end of each month after paying essential bills. One in ten of us is living in food poverty. One million of our fellow citizens are living in deprivation as measured by the CSO – including over 335,000 children.

And these figures would probably be even starker were it not for emigration: between April 2011 and April 2012 alone, a total of 46,500 Irish people left the country.

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The importance of the debate on the IMF’s ‘multipliers’

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It is unusual for ‘academic’ research published by the IMF to find its way into popular media. But this has happened to the latest World Economic Outlook where the IMF deals briefly with the issue of ‘multipliers’ that is, the economic impact of changes in government spending.

The short article has caused an usually high level of commentary among economists and commentators because the data suggests that the multipliers are perhaps more than double the level generally implied by official research and forecasts. Nobel Laureate Paul Krugman has commented that the research shows that, ‘the reason for the worsening outlook is that policy makers have gotten the basic economics wrong’. In Britain Chris Giles economic editor of the Financial Times has led a counter-attack by questioning the validity of the research. A string of other commentators have joined the debate on both sides, including a Greek finance minister.

The key point in the IMF research is that the multipliers are much higher than previously thought by leading bodies such as the IMF, OECD and others. ‘The main finding, based on data for 28 economies, is that the multipliers used in generating [IMF] growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2….’ Whereas the IMF’s (and others) own forecasts implied a multiplier of 0.5, the actual multipliers may be in the range of 0.9 to 1.7.

It is useful to assess why this seemingly arcane debate has created such controversy and why that is taking place currently.

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The Failed Experiment: Public Private Partnerships in Ireland


The recent Comptroller and Auditor’s report on the 2011 public service accounts reveals the continuing cost of Public Private Partnerships (PPPs) in Ireland. It provides further evidence that the transfer of risk has been exaggerated and overpriced.

The National Roads Authority (NRA) agreed to traffic-related guarantee payments for the M3 Clonee/Kells and Limerick Tunnel PPPs. The NRA has to pay the PPP company additional money if average traffic levels in any half-year period do not exceed the level of guaranteed traffic in the contract. The Comptroller and Auditor reported significant shortfalls in traffic volumes relative to the guaranteed thresholds in 2010 and 2011 and forecast the additional payment of €6.7m for 2012. Even if traffic continues to increase at an average 2.5% per annum, the government will be paying traffic guaranteed payments for the M3 Clonee/Kells PPP until 2025 and the Limerick Tunnel until 2041! Additional payment could exceed €140m at current prices.

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Drowning the Good Guys and Gals

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This analysis of our interview with Harry Browne is not a critique of his journalism but rather of the coercive effect on him of the professional, corporate media environment as it seemed evident during the…

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