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That latest Public Sector perk… November 28, 2009

Posted by WorldbyStorm in Economy, Irish Politics, Uncategorized.
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Government officials and the public sector unions are expected to begin considering in detail today proposals for reducing the pay bill for next year.

The introduction of a compulsory unpaid leave arrangement for staff in the public service next year is emerging as a central feature of any alternative deal between unions and the Government for reducing the public sector pay bill without across-the-board pay cuts.

The details of the amount of unpaid leave that staff would be obliged to take next year under any such alternative agreement has not been decided. There has been speculation in recent days that it could involve 12-14 days per year.

The introduction of compulsory unpaid leave would effectively represent a reduction in earnings for staff – some unions estimate that it means a 2 per cent cut for every five days of unpaid leave. However, the nominal pensionable pay of workers would remain the same.

Or… when is a pay cut… not a pay cut?

When it sort of is a pay cut?

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1. Logan - November 28, 2009

I have heard that rumour too.
Actually, I have heard it on good authority that it would be graduated – higher paid people would have to take (say) fourteen unpaid leave days in the year, middle income people would have to take ten, and the lower paid four.

Also “frontline” staff (eg consultants, nurses, etc.), could be exempt.

It could be unpopular with the general public if it applies to the teachers!

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WorldbyStorm - November 28, 2009

I’d presume it would apply to teachers…

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2. dotski - November 28, 2009

This has been doing the rounds for a few months – I remember proposing it myself as an alternative to the pension levy.

has the advantages (over pay-cuts) that (a) while give and take now, withdrawal of it would be take and give (i.e. there would be some benefit to the official side to reducing it over time to deal with staffing requirements, and so they are more likely to do so) meaning unlike a cut in the rate of pay it may indeed be temporary,

(b) withdrawal could be varied, as some may choose to hold on to the unpaid leave for family reasons, allowing others who really need to increase wages to come back quicker, and

(c) we at least get something for the reduction in take-home, i.e. we spend time with our families.

Big fear is that they are also looking to increase length of working week, so if that is part of package, there’s no quid pro quo (stil working same hours and paid less money, so straightforward pay-cut) and also harder to manage, as instead of some ppl taking a flexi day every month or so, units become nearly empty at the end of the leave year as staff try to use up their leave – worst of all worlds…

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WorldbyStorm - November 28, 2009

I was canvassed by two separate GP people for my opinion on this about two months back. Makes me wonder about how long this has been in the works, particularly since you and Logan also heard of it.

Got to say i’m not averse to the idea – I get IIRC slightly less holidays than I got in the private sector. More time abhaile is good in my book.

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3. alastair - November 28, 2009

This might have some merit for the big fish, but makes little sense for most. Though it’d be easier to apply to teachers than most – just ensure the unpaid leave is taken during the summer break. Far better to just apply a conventional scaled salary cut all the same.

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dotski - November 28, 2009

“Though it’d be easier to apply to teachers than most – just ensure the unpaid leave is taken during the summer break.”

ummm …. that wouldn’t be the same at all, it would be a reduced payment for the same level of work!

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alastair - November 28, 2009

And? You’d prefer the time to be taken out of teaching weeks?

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dmfod - November 28, 2009

in practice for a lot of jobs this will just act as a pay cut – as alastair said if you’re a teacher or lecturer it will mean you aren’t paid for part of the summer break when you are not teaching. Any other job where you work from home or at your own pace such as research will be similarly affected.

Ultimately there’s still the same amount of work to do but you just get less money for doing it & depending on the flexibility of your work arrangements, you either have a shorter period of time in which to do it or you work for free for some of the time.

It’ll be less bad for some jobs e.g. civil servants in administrative roles than others so it’s yet another divide and conquer strategy from the government and unions – it will probably be coupled with allowances and overtime cuts for the jobs they can’t make take unpaid leave e.g. guards, nurses.

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EWI - November 28, 2009

Far better to just apply a conventional scaled salary cut all the same.

God forbid. Then the IT and the rest of our glorious media might be forced to acknowledge that the PS is indeed sacrificing here.

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4. EWI - November 28, 2009

Any other job where you work from home or at your own pace such as research will be similarly affected.

I agree entirely. Any professional PS staff will inevitably be working from home during this so-called “unpaid leave” (deadlines don’t go away).

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5. dotski - November 28, 2009

Well Alastair I’d rather teachers and public sector workers weren’t victimised at all. We’ve low taxes in this country which we can no longer afford the luxury of, and the rich get a ridiculously good deal here. Going after them, rather than teachers, would be what I’d do.

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alastair - November 28, 2009

Taxes are going up – no doubt about that. Equally there’s no doubt that eating the rich won’t summon up anywhere near the shortfall in revenues, so what would you suggest in the meantime, given that the state outgoings far outstrip it’s income?

And there’s no ‘victimisation’ in public sector workers, teachers included, dealing with the lot we’ve been dealt, same as everyone else.

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dmfod - November 28, 2009

what bullshit – the whole point is that the gvt is choosing to cut the pay of public sector workers rather than say increase tax on everyone or increase tax just on the rich or on corporations ergo it is victimising PS workers as cutting their pay is the same as hugely increasing tax just on PS workers

a 1% wealth tax (not including on family homes or farmland) would raise 1.6bn euros – more than the 1.3bn the gvt is trying to cut from PS wages – and before you say well you can’t do it every year, well you can bloody well do it til the crisis is over which after all we’re supposed to believe will be in 2 or 3 years – so if we can have temporary pay cuts, why can’t we have a temporary wealth tax?

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alastair - November 28, 2009

a 1% wealth tax (not including on family homes or farmland) would raise 1.6bn euros

SF’s back of an envelope calculation? That’s the real bullshit – there’s no way that a 1% tax on assets over a €million in the state (excluding residences and farms) would bring in anywhere near that – commercial property values have been decimated, and the movable wealth is, by definition, movable outside the state – beyond the grasp of the tax man.

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6. WorldbyStorm - November 28, 2009

We need to see the detail. Presumably some time before next Thursday.

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7. WorldbyStorm - November 28, 2009

dmfod… there’s a point in what you’re saying in so far as soon enough there won’t be any cover (and I’ve been profoundly dubious about that cover for a considerable length of time) for those critiquing the public sector… I wonder, given that precisely the same problems will exist on essentially the same scale where the finger will point next.

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dmfod - November 28, 2009

alastair – that’s a pretty self-defeating reason for not taxing people – they’ll try to evade it! by that logic there’s no point trying to tax anyone except PAYE workers. A solution for the first year is to base the tax on the previous year’s income before the tax was introduced so it doesn’t matter if people move their money away this year. The mobility of the rich and their assets is frequently exaggerated anyway – lots of them like living here, have families etc. and cannot just up sticks at slight tax increases. And if it’s that easy to shift assets overseas to avoid tax, then the laws should be changed to make it more difficult. Sending offenders and their accoutants to prison would also help.

Also if reliefs were abolished, there’s a pot of gold right away – there should be no reliefs for anything as they inherently discriminate against the poor and what useful ones there are e.g. mortgage interest relief could be just given as a social welfare payment.

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alastair - November 29, 2009

Wealth tax is based on assets or capital, not previous income, so I’m not sure how you could factor in a previous year’s income into the equation. And the mobility of wealth doesn’t need to be exaggerated – just look to John Magnier, JP McManus, Michael Smurfit, Dermot Desmond, Denis O’Brien, et al should speak to the reality of how the money slips away easily and legally.

Reliefs discriminate against the poor? So you’d like to get rid of single parent tax credits, housing tax credits and reliefs, old age tax credit, OAP tax covenants, dependent relative tax credit, incapacitated child tax credit, trade union tax credit, widowed parents tax credits, etc? I’m seeing quite a pot of gold there alright.

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dmfod - November 29, 2009

whoops re the wealth tax, I meant to say the previous years assets not income

alastair i never said anything about reducing tax credits which are not the same thing as reliefs.i think you’re being quite disingenuous to claim that reliefs benefit the poor more than rich – the amount of reliefs poorer people can avail of are dwarfed by that claimed by the rich. the effect of reliefs in many instances is to make the income tax system less progressive by giving more back to people with higher incomes so I’m opposed to them on principle.

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WorldbyStorm - November 29, 2009

Here’s a place to start dmfod, given the reports this very week that pension tax relief benefit given at the standard rate rather than the two rates we currently have which the ESRI calculate sees 8 out of every 10 euro going to those on the higher rate we could get 1bn per annum, progressive-economy suggests, for supporting sustainable pension provision, but heck, in the short term we could be looking at using it to bolster public services, combat deflation, etc.

Here’s some interesting data on tax reliefs and just how much they’re worth in the context of the tax system…

http://notesonthefront.typepad.com/politicaleconomy/2009/09/the-government-now-has-its-bookends-on-the-expenditure-side-the-mccarthy-report-on-the-taxation-side-the-commission-repo.html

And that entirely undermines the idea that somehow we can’t find revenue streams there from the off to be used to fund the public sector.

BTW, it’s also worth noting the chorus from people like Donal Casey and the pensions industry spokespeople arguing against reform of the reliefs that benefit the wealthy.

They’re quite attached to their benefits from the welfare state.

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alastair - November 29, 2009

There’s some weird disconnect at play here. There’s currently massive undersubscription to pensions in the private sector, on the basis that they are unaffordable to most on the current ROI terms. It’s only the higher level of pension tax relief that attracts even that limited degree of pension investment. Reducing the level of pension tax relief will indeed reel some revenue back into the state in the short term, but at the price of longer term outlay for those who couldn’t afford to contribute to their own pension provision.

Even the much lauded Swedish model for pension provision is exposed to the vagiaries of the markets, to the point where their model for personal pension tax relief – full tax relief at lower (30%) and higher (50%) tax bands, follows the usual expectations – there’s little uptake at the lower tax band because it provides poor value on investment.

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8. dotski - November 29, 2009

alastair – just asking like – but you DO know that taxation here is lower than in the other EU countries weathering this storm better than us, don’t you?
And as for “the lot we’ve all been dealt with”, according to a recent poll, only 30% of the population have seen a drop in their pay over the last year. given over 90% of PS have, that means that the majority of those who have seen their pay fall are already PS.

TBH Alastair, I’m reading your posts and wondering if you’re of working age….

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alastair - November 29, 2009

I think you’ll find that 100% of the population have seen a drop in their wages in the last year – in the form of income and health levys and adjusted PRSI cut off points. Your poll of a limited number in the IT runs counter to the CSO figures for income tax, which – after allowing for pension levy and live register figures – indicate a 13% drop in income figures for the last 3 months alone. It beggars belief that a 13% drop in take home pay would be sole attributable to 30% of workers – I’d lose the fantasy that the public sector are shouldering the bulk of the financial burden. The recent Red C poll for the SBP suggests that: Almost half of all adults – and 58 per cent of wage earners – have seen their pay/package fall, and 17 per cent have lost their jobs over the past 12 months. This includes not just hourly pay but bonuses and other benefits.

Now – who is paying the wages of those who haven’t had or needed a pay cut in the private sector, and how would a pay cut help with the revenue shortfall we are experiencing? Who is paying the wages of those in the public sector? If the money is there have you a problem with continuing on their existing salary? Tax increases are here, and there’s more to come – but no-one realistically claims that we can bridge the revenue gap that currently exists through any taxation formula – longer term higher taxation may well be sensible, but it’s no quick fix for where we are now.

I’ve been of working age for quite some time now, cheers.

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dotski - November 29, 2009

Daft post Alastair, tax increases are not “wage cuts”, and have been experienced by PS workers also. I know plenty of relatives who haven’t had their wages cut “yet”, as evinced by the IT poll (not “my” poll but a poll of 1,000 people by a respected polling company). Your amateurish attempt tp suggest this is undermined by the RedC poll gave me a laugh however.”Almost half of all adults – and 58 per cent of wage earners – have seen their pay/package fall” Well, if they were all on the same wages, 100% should have seen their “pay/package” fall, as a result of the taxes you mentioned (assuming they define it the same way as you do!). If it’s less than half of adults and 58% of wage earners, as suggested by this poll, it would actually mean a majority have seen their gross pay stay the same or rise, despite increases taxes, with only about half of those increases cancelled out by the tax increases! Of course, we do know that 100% of PS workers have seen their pay cut, by an average of 7-8% (on top of the tax increases and CB cuts).

As for can tax increases bridge the gap – well no, probably not unless very significant, but neither can cuts in PS wages. We’re told a 5-10 cut in PS pay might result in 1.3 billion in savings. At that rate, a 100% cut in PS wages wouldn’t actually rid us of the deficit (even if you ignore the economic effects of taking that much money out of the economy, the SW costs of people as unemployment increased, and the amount of the private sector that depends on State expenditure to exist).

So what would I do? A rational approach of trying to control costs (not just pay) combined with higher taxes (particularly for the well off) and a broadly based property tax which hits expensive properties hardest would take as much money out of the economy which was prudent, and at least half the money going in to the NPRF should be invested in capital (at a time it is at a historical low cost) rather than continue to gamble it on the international stock exchanges. When it was set up the rationale for not investing in domestic projects was that it would over-heat the economy. That argument no longer makes any sense. That, rather than trying to screw PS workers. The leaks to date suggest that the govt have been looking for about the same cut this year as April, which would mean a 15% cut (in addition to the tax increases you count as “wage cuts”), and no-one out there is stupid enough to believe that this is, and even the evidence you cite undermines your argument.

You may be of working age, but you sounds like you’ve learnt economics reading it from the front page of the Irish Independent.

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alastair - November 29, 2009

I’m not sure how to break it to you but seeing your wages drop on the back of increased taxation (the levys) is quite different from a reduction in your pay/package – hence there’s a 100% reduction in all take-home wages as a consequence of scenario 1, and a reported 58% reduction in pay on the back of scenario 2. Nothing undermined there that I can see (unless you don’t believe that the levys actually reduce take-home wages?).

I note that you choose to ignore the question of who pays the salaries of those 50% odd private sector workers who haven’t yet taken a salary cut, and how that relates to the need to curb state overheads. TBH the burden of a 7% pay cut on an income of 45 grand,combined with a preferential pension deal and job security, doesn’t sound particularly like ‘being screwed’ in a scenario where the money simply isn’t there, and the providers of said money are down 13% in three months and out of work to the tune of 100,000 over the last year.

Not an indo reader btw – but feel free to choose whatever straw man argument you like.

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dmfod - November 29, 2009

re the pensions alastair – why is it that the long term consequences of cutting tax relief on private pensions to help solve the fiscal crisis now are so crucially important, but the long term consequences of cutting public services such as health and education or raiding the NPRF are not – and if they are raised the immediate answer is ‘it’s simple economics we just can’t afford it’!

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WorldbyStorm - November 29, 2009

I should have added dmfod that the Commission on Taxation report recommended raising the level of relief from the lower level to 30% and reducing it from the marginal rate to 30%, in other words a single tax relief band.

Behold how Ernst & Young react to that and other proposals….

http://www.ey.com/IE/en/Newsroom/News-releases/Press-release-2009—Commission-on-Taxation-recommendations

They express a concern about the ‘collapse’ of private pension provision which seems ironic given the fact that less than 50% of private sector employees (according to a New Ireland study last month) actually have pensions either due to a lack of provision of occupational pensions within companies, wages too low to start up individual private pensions or whatever. Meanwhile, those on high earnings swallow up 8/10ths of tax relief. Hardly equitable given the patchy provision of private pensions. Particularly in the absence of mandatory universal private pension provision. Particularly given that the concept that pensions tax relief is essentially deferred taxation and revenue neutral is strongly disputed not merely in the ESRI report but elsewhere in literature from such bodies as the OECD. For more on that:

http://www.progressive-economy.ie/2009/08/current-pension-tax-reliefs-inequitable.html

There’s more here on the same topic and article…

http://cedarlounge.wordpress.com/2009/08/06/area-man-pleads-with-state-to-continue-to-give-tax-reliefs-to-save-private-pensions-in-order-to-prevent-reliance-on-er-the-state/

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9. Michael Taft - November 29, 2009

What a wealth tax could raise is conjecture, such is the poor state of our data on wealth. Using the proportion of French wealth tax revenue as a percentage of GDP, a similar tax could raise between €350 and €450 million a year. But one has to remember that the Wealth Tax has been cut back by successive conservative administrations.

If one attempts to use the Bank of Ireland data and write-down the assets per the proportions used by the Central Bank, we could estimate a tax take of €1.7 billion from the top 75,000 households, exempting the first €1 million but before any other exemptions, reliefs. Using the Central Bank net asset data, we could estimate a tax take of €1.1 billion before any excemtions, reliefs. So, take your pick.

Wealth mobility is not as issue as it would be a tax on global assets. If the Commission on Taxation proposals were adopted, then you’d be assessed if your principal residence or your centre of economic activity was here. Or we could just go the whole hog and base taxation on citizenship (as is done in the US). An additional boost would be that it would give the Revenue Commissioners a new audit base.

Compare that to cutting the public sector payroll by approximately 5 percent (through whatever mechanism). Such a cut would be deflationary (especially cutting consumer spending) and will even result in private sector job losses. It would, therefore, reduce the fiscal deficit by only about 0.2% to 0.3%. A wealth tax, however, would have none of these deflationary defects.

Indeed, for those who believe that a property tax should be introduced to widen the tax base, a wealth tax is a good place to start. It is, after all, a comprehensive property tax – and its a tax on net assets. By phasing it in, starting at the top, it could be extnded over the years – reducing thresholds progressively. Ultimately, it could be a nice money spinner while protecting those whose main property asset – their house – contains a high liability (e.g. mortgage).

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10. Crocodile - November 29, 2009

The prospect of unpaid leave might at first seem preferable to a pay cut, but I’m not so sure. Many public sector workplaces have already lost staff that will not be replaced and can’t implement promotions, so staff are already doing more work for less pay than a couple of years ago. Another week’s unpaid leave, for me, would just mean work building up on my desk to be done as unpaid overtime when I got back.
And if unpaid leave resulted in a better work/life balance, it wouldn’t be acceptable to the Eddie Hobbses and Stephen Collinses of the media: the point, you see, just as much as saving money, is punishment! Punishment, I tell you!!!!

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