Shhh. Rewrite at Work - Budgetary Loopholes in the Public Sector Agreement.

As has been noted the new public sector pay deal, which is going through its consultation at the moment, raises as many questions as it tries to answer. Some commentators have suggested that the deal is nothing more than an attempt to mend fences by the Govt. for the purposes of shoring up a weakened voter base. Regretably there may be some truth in that and certainly it would be fairly typical of the govt. to focus more on the optics of the situation rather than to honestly seek a solution. 

 

Michael Taft, on Irish Left Review, has conducted a review of the agreement and focussed closely on point 1.28:

 

'The implementation of this Agreement is subject to no currently unforeseen budgetary deterioration.' ,  - which is a get out of jail card as big as you will ever find anywhere.

 

The one consistent mark of the Dept. of Finance has been its inability to predict budgetary movements with any accuracy. Detioration beyond what they have foreseen has almost become a rule. So is this agreement just a feel good hearkening back to the days of partnership or is there some merit here. There may well be some merit in the agreement but only if the Govt, were to approach the deal in an open and honest manner in the spirit of partnership rather than the spirit of fear. His post it reproduced below.

 

As Michael Taft notes:

 

"

The Government insisted on inserting the following phrase into the proposed public sector pay deal:

 

'The implementation of this Agreement is subject to no currently unforeseen budgetary deterioration.'

Now the Government is busily rewriting this. Apparently, the agreement is no longer subject to currently unforeseen budgetary deterioration. Indeed, to even refer to the Government's clause is now considered to be irresponsible.

'The department also described as "a red herring" criticisms which have been raised about the so-called "get-out-of-jail" card in the agreement. This states that the implementation of the measures set out in the deal is subject to there being no unforeseen deterioration in the Government's finances. The Government would follow through on all the commitments in the deal except in very exceptional circumstances such as another major financial crisis, said the department yesterday.'

There is a good reason why the Government is busily rewriting the agreement.

For whatever about the 'unforeseen' part, there is little doubt that the budgetary situation is deteriorating. And Ministers are getting a bit touchy about this.

The Government is projecting the deficit this year to come in at -11.6 percent - only fractionally lower than last year. Maintaining this level is crucial both economically and politically; slippage would call into question the very premise of Government strategy. .

Slippage 1: In the last few weeks the CSO recorded GDP levels more than €1 billion below the Government's projections published in December. In addition, on foot of the recent Quarterly Household Report, unemployment figures were revised upwards from - 12.6 percent to 13.4 percent. Out of all this, last year's deficit has to be revised downwards again -from -11.7 to -11.8 percent; admittedly marginal, but downwards nonetheless.

Slippage 2: After the first three months of this year, the Government is already off-target. By March, tax revenue was -3.6 percent below target, down from February's undershoot of -1.3 percent. The Government expected tax receipts this year to be €2 billion below last year's level. In the first quarter alone, tax receipts are already €1.2 billion under target. The slippage is getting slippier.

It's not just that the Government's strategy is coming under internal pressure, it's also getting a wallop of external pressure.

The EU Commission in its most recent statement on Irish public finances has warned the Government that (a) its growth projections are too optimistic, (b) expenditure will over-run, and (c) it will have to engage in 'additional' consolidation measures (more spending cuts/tax increases beyond what the Government has already projected). Even if the Government comes in on target, the EU Commission wants Ireland to 'consolidate' further to bring down overall debt levels.

The IMF also gives the Government similar warnings and argues that the Government must cut spending even further if it is to bring the deficit below -3% by 2014 (the Maastricht guideline).

The final straw on this deteriorating camel comes from the Central Bank. While much attention was paid to their projection that the economy will return to growth by the second half of the year, some of the fine print was glossed over. Namely, that GDP will be well below the Government's projections - by nearly 3 percent by 2011 in nominal terms. This will put even more pressure on the deficit.

All this will lead to 'budgetary deterioration'. How much is hard to say but there are certain symbolic targets. For instance, the Government is projecting a small decline in the deficit this year. If it actually worsens - no matter how much - the optics will be bad. If it goes beyond -12 percent, it will look particularly bad. That this is certainly possible can be seen from the Bank for International Settlement's projection of a deficit of -12.2 percent for this year.

It is doubtful that such a slide would result in the Government tearing up the agreement if it is accepted (though this cannot be ruled out). But what it would certainly mean is that there would be little chance of reversing any pay cuts in 2011.

No wonder that the Government wants to shift the goalposts of the agreement by redefining 'deterioration' as 'another financial crisis' (does Quinn count as such a crisis?). They hope that it will take everyone's mind off the actually existing deterioration and the thin to non-existent chance of any pay claw-back.

It is the ultimate in ostrich-like indifference to the reality around us. The Government may want to find a soft bed of sand to stick its head in - that doesn't mean we have to.

"