Public sector annual earnings: the facts

This is a link to a table outlining the annual earnings of public sector workers. It was produced by the government after a question in the Dáil by Ruadhri Quinn.

  • 18 per cent  earn less than €30k a year
  • 31 per cent earn less than €35k a year
  • 43 per cent earn less than €40k a year
  • 54 per cent earn less than €45k a year
  • 66 per cent earn less than €50k a year
  • 76 per cent earn less than €55k a year
  • 85 per cent earn less than €60k a year

So, over 60 per cent of public sector workers earn less than €50k a year and 43 per cent earn slightly above the average industrial wage. These are not figures that merit media commentary about public sector ‘fat cats’  we have witnessed since the ESRI published its findings on the wage differentials between the private and public sector. These are good salaries and reflect the very good working conditions that those employed by the state enjoy. But, surely this is a good thing? One would expect the state to be a good employer that renumerates fairly, and it does. Furthermore, these figures do not contain the pension levy which reduced earnings by at least 6 per cent.

Presently the government have signalled it is not in a position to pay the transitional national wage agreement. IBEC have yet to signal whether they are in or out of the agreement. Over 150 private sector companies have paid the wage increases  from the transitional agreement of  T2016. Small and medium size businesses have begun to reduce wage costs and are shedding jobs.  But, the only concrete evidence to date (IBEC survey) has shown that private sector companies have mainly introduced wage freezes not wage cuts.

In effect, we are under going a collective wage freeze in the economy with the exception of some profitable sectors who are paying the T2016 wage increases. Wage freezes are necessary in the public sector but not sufficient on its own to fix the public finances. Up until August 2008 it was generally accepted that centralised wage bargaining instituted wage restraint. But now a consensus is emerging that national wage agreements (social partnership) led to the complete opposite. This is an easy and simplistic response that fails to contextualize income policy in the wider reality of a grossly exaggerated asset price bubble. It can hardly be expected that wages post-2000 would remain restrained during a period when the ECB was cutting interest rates, and house prices rising by 10 per cent a year?

To genuinely tackle the economic crisis (finance, jobs and credit) we need an honest debate about income policy in both the private and the public sector. There are elements of the private sector, not the SME’s, but in large MNC’s that paid well above the national wage agreements since 2000. In this sector, centralised collective bargaining set a pay norm that was a floor not a ceiling. In most sectors (exposed domestic and sheltered public sector) it was a ceiling.

If a cut in public sector pay occurs it might curb our borrowing slightly. But, it will also take out a huge amount of consumer spending in the real economy with knock on effects in taxation, given that we are so reliant on indirect consumer taxes. This is not an argument against a reduction in the public sector wage bill but a proposal for a genuine cost-benefit analysis on its effects in the real economy, and short term supply of revenue to the state.

Presently such a discussion has not taken place in the Irish public sphere, nor has it been helped by the policies of the EU commission. We need a debate that involves an examination of income policy across the entire economy (and not based upon untruths about the public sector) with joined up thinking about the likely effects of a reduction in expenditure. 85 per cent of the public sector earn less than €60k and this is around 300,000 people. That is more than a group of employees. It is a significant group of consumers. So, even on purely economic grounds, without recourse to legitimate equity concerns, cutting pay may be counter productive. But the EU commission has effectively demanded a €4bn reduction in public expenditure. In the absence of pay cuts, social welfare will  become the  target of savings, which is even more inequitable.

There is a case for a collective reduction in pay across all sectors of the economy. But, for those who can afford it. This will have to include those on the average industrial wage.  However,  a more efficient and equitable way is to do it via the income tax system. Our income tax revenue is the same as Estonia, Lithuania and Latvia. This is completely unsustainable.  It needs to be broadened and made more progressive. But, a collective and simultaneous reduction in consumer prices, energy costs and wage costs, coupled with the introduction of a progressive taxation system (and immediate closure of tax loop holes) with the overall objective of maintaining and creating employment is probably the ‘ideal’ way to go. This, however, would require a hugely ambitious national agreement by the social partners (including SME’s) and a government that was perceived to be legitimate in the eyes of the electorate.

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12 responses to “Public sector annual earnings: the facts

  1. Roisín Shortall asked similar question in Feruary or March last year (well, to be accurate I should say that a question she asked then produced a similar answer — I haven’t seen the text Ruairí Quinn’s question).

    I am interested in the fact that the breakdown stops at €100,000. At 9,000 people, that group is large enough to merit more detail being made available to the public.

    • re: Tomboktu

      I agree it does merit further inquiry. And, yes, 9,000 people is a significant amount of people. It obviously includes politicians (so thats 166), senior civil servants, heads of public agencies such as the HSE and university professors.

  2. “Our income tax revenue is the same as Estonia, Lithuania and Latvia. This is completely unsustainable. It needs to be broadened and made more progressive.”

    Our income tax base needs to be broadened all right, and distortion by reliefs at the high end must be eliminated … but a mere glance at a graph of the effective income tax rates across income levels from zero to circa 150k should be enough to tell you that there is already extreme progressivity in this range.

    • Re: Proposition Joe

      I would not go as far as saying it is extremely progressive in the same way I would not say it is extremely regressive. But, if you look at a similar graph for the EU and thus examine it comparatively, a different picture emerges.

      • Proposition Joe

        Well I was under the impression that the opposite is in fact the case, i.e. that the gap between the Irish effective tax rates and the corresponding cross-EU number actually narrows as you go up through the income deciles. This would indicate that the progessivity gradient is actually *steeper* than average in Ireland.

        Garret Fitzgerald, no tax-cutting hawk either in practice or in rhetoric, seems to support the high-progressivity view here:

        http://www.irishtimes.com/newspaper/opinion/2009/1107/1224258280435.html

        So I would be interested in seeing a comparative graph of rates from across the EU, can you provide a link?

      • I dont have any graphs on rates to hand. Eurostat tends to be my first point of call but dont think they provide this. You may be correct on the steepness of the gradient. But, what these do not consider are the effects of indirect consumer taxes. Our heavy reliance on indirect consumer taxes (detailed by G Fitzgerald in that article) is in itself highly regressive. They tend to adversely affect those on lower to middle incomes. But, arguably, because we have a narrow tax base this evens itself out. Now that I think about it, it is very hard to talk about ‘progressive and regressive’ tax regimes when only looking at taxes on income.

        Another contribution to regressivity is the issue of tax reliefs. Tax relief on pensions, capital allowance, mortage interest relief, health insurance and other personal allowances tend to favour those higher up the income distribution. Then there are those that are not easily quantifiable such as stallion stud fees and other special investment schemes. Tim Callan from the ESRI has a really good paper on this (2005). But, prior to these exemptions which emerged post 2000, one could argue that the tax reforms that took place in the late 90’s also benefited the disposable income of those on higher incomes (due to the significant drop in the top rates).

      • Proposition Joe

        I totally agree on the reliefs issue. But there’s actually a simple way to counteract this, without nit-picking over every single individual relief. Since 2007, we’ve had an alternative minimum tax rate of 20% for high earners over 500k, regardless of any reliefs they’ve used. If the threshold for this were reduced to say 250k and the minimum rate were increased to say 35%, it would cut the entire “tax planning” industry off at the knees.

        However we still can’t get away from the 50% of workers who pay no income tax at all, and the mere 10% who pay the higher rate. This is the sting in the tail that the tax-not-cut advocates are too polite to talk about in public (or else haven’t gotten around to thinking through the logical conclusion of their own advocacy).

        Moving our tax regime closer to European norms would require that the the majority of public servants on <45k that you spoke of in this post, and the even larger proportion of private sector workers on that sort of money, would start to pay substantially more tax than they do currently. Similarly for those in the 45k-75k bucket and all the way up. The point is that the brunt of a tax-based correction would actually fall more heavily on average or just-below-average earners, as this is the cohort that's currently paying a rate *farthest* from the optimal level.

  3. Aidan – good to bring forward these figures to put the public sector wage bit in perspective. Do you happen to have a link to the actual Dail question? Also, does this table include the pension levy (previous breakdowns haven’t).

    There is another way to deal effectively with wage – pre-tax – other than nominal cuts. And that is, to cut the real wage through productivity gains. If there is more out put per worker, the real wage falls and competitiveness rises. There are many ways to do raise productivity – one of which is to modernise and upgrade our woeful infrastructure (ranked 65th in the world). If we had a public enterprise company rolling out Next Generation Broadband to all businesses; if we had motorway links to all major urban areas; if we had faster, more frequent rail links; if we had a Smart Electricity Grid – all these would raise productivity and, therefore, decrease real wages. This would facilitatie nomial pay rises – in private and public sector – and still leave competitive gains. Needless to say, this generates tax revenue, consumption, etc.

    In other words, investment equals win-win.

    • Re: Michael Taft

      Unfortunately I do not have the link to the Dáil question to hand. But, I can try hunt it out. And, as far as I am aware it does not include the pension levy.

      I agree with your strategy to raise productivity (and simultaneously create employment and more tax revenue) via public investment. And, politically this is the real alternative strategy to push. But, I sense this is not going to happen under the FF-Green coalition, a government which is getting stronger not weaker by the day. This means we are left with Budget 09, and possibly Budget 10′ being carried out by a liberal-conservative government. So, it is about damage control at this point in time. But, ultimately, and broadly speaking, I agree with your alternative. This, however, would require a completely new government that is not led by FG.

    • @Michael

      Here’s a link to the same answer, though it appears to be in response to a different question (from Richard Bruton, as opposed to Ruari Quinn)

      http://www.kildarestreet.com/wrans/?id=2009-02-17.826.0

      These are gross salary numbers, so the pension levy impact is not included.

      Note also these data account for only 300,000 public servants, as local authority employees are excluded. So we’d have to assume the same distribution of salary levels in the LAs in order to support Aidan’s assertion about 300k public servants earning less than €60k. No reason not to assume that I guess, just not directly shown by these data.

  4. Re: Proposition Joe

    I agree there is no getting away from the 50% who pay no income tax. And, I think it is inevitable that if we want high quality public services then this group has to be brought into a new income tax regime. This inevitably requires public servants, or any other employee earning less than €45k and up to €85k paying more tax. But, I think this policy should be part of a wider systematic reform of how we raise and spend revenue than a short term fiscal correction. It would be impossible to correct the hole in the public finances by tax alone, even though it is a tax problem.

    This is a bigger question of reforming and re-designing tax policy. But, to do this effectively it has to be coordinated toward a shared end goal. In universal based social insurance schemes and welfare states it is easier to get ‘buy-in’ for a collective high income tax rate because everyone benefits from the outcome: efficient and high quality public/social services. In our heavily means tested system with complex differentiation it is much harder to advocate inclusive and higher taxes because people do not experience the benefit. Why pay more tax when you pay privately for your healthcare and your childrens education?

    So, tax regimes and tax systems are heavily embedded in the wider institutional framework of welfare states (both cash transfers and benefits in kind). Reforming this policy infrastructure is no easy task given the path dependent nature of institutions but if we want to broaden the tax base then the state has to provide something in return. A universal high quality healthcare service might be a start.

  5. The figures in the table are for salaries rather than earnings. It is an important difference

    If you multiply the maximum amount of each band by the number of people in it (and allow a 200K average for those in the over 100k band) you get a total salary cost of €15.5 billion. Use the minimum amount in each band (with 12.5K in first band) and you get a total salary bill of €13.88 billion.

    Compare this to the total public sector pay bill of €19.5 billion. €1.8 billion of this is the public sector pension costs.

    The remaining €2.2 – €3.8 billion gap (depending on method chosen) is the the amount paid out in allowances, overtime and so on.

    So I calculate that, on average, earnings (excluding pension costs) are ~20% more than salary meaning roughly 50% of public sector workers make less than €50K, and 50% make more than €50K. This assumes the extra payments are distributed proportionally through out the bands.

    Also it would be interesting to know if these figures reflect the full time equivalent salary or if part time salaries are shown as is – this would at least partially explain the number of lower earners. I.e. Is someone doing a three day week and getting 30K shown as 50K (FTE) or 30K?

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