A leaked European Commission report has urged the government not to rule out cuts to public pay levels.

A leaked European Commission report has urged the government not to rule out cuts to public pay levels.

THE EU-IMF TROIKA has told the Irish government to ‘keep all options on the table’ in finding savings in the public sector, including cutting public pay rates, in order to cut back on public spending in the final year of the bailout programme.

The Troika lenders have said the government’s plans to further cut the number of public staff may not go far enough, and that the government needs to make additional savings in the public sector while maintaining services.

The disclosure is contained in a draft European Commission report – not due for public release for several weeks – which has been seen by TheJournal.ie.

The report, compiled following the last Troika inspection of Ireland’s bailout progress in October, says the Troika believes “all options should be kept on the table” in order to further reduce the public pay bill, which is expected to stand at just over €15 billion in 2013 with staff numbers at 292,000.

The disclosure signals some frustration among the Troika lenders at the terms of the Croke Park Agreement, under which the government agrees not to enforce compulsory public redundancies or pay cuts, in exchange for more employee flexibility in working practices.

Inspectors from the European Commission, European Central Bank and the International Monetary Fund – who between them are behind almost all of Ireland’s €67.5 billion in bailout loans – said the “option to review pay scales” was one prospect that should not be ruled out.

Further, focusing on paring back some allowances paid to public sector workers should be pursued, “besides relying on further reductions in payroll costs”.

These measures would be pursued alongside the government’s existing attempts to squeeze more savings from the Croke Park deal through “additional productivity reforms”, which specifically include “the number of hours worked”, according to the document.

Cutting pay grades ‘a better way to align rates’

“Reductions in allowances and salary scales for some categories of workers could be considered as a way to better align pay rates with those other countries,” the European Commission suggests, adding:

This would also allow further savings in the pay bill to be made without compromising the delivery of essential public services.

The news could bring about new tensions between the government and public service unions, who have recently begun preparatory talks on extracting further value from the Croke Park deal and laying the groundwork for a successor deal from 2014 onward.

Public Expenditure minister Brendan Howlin has already expressed his wish to extend the Croke Park provisions until 2016 – a move which, if brought to fruition, would bring Ireland out of the EU’s ‘excessive deficit procedure’ and give it a greater degree of latitude in deciding its own financial policy.

Howlin has, however, insisted that pay cuts for lower public earners remain off the table, and has dismissed any suggestions to bring about further cuts in public numbers.

The visit of the Troika inspectors came only a day after it was claimed that the Troika had expressed “serious misgivings” about the estimates of savings achieved in the Croke Park deal’s first two years, of €1.5 billion. The government refuted these claims.

The leaked Commission report appears to affirm the Troika’s satisfaction at this estimate, citing the estimated savings – of €810 million in year one and €678 million in year two – without casting any aspersions on the figures.