Special Delegeate Conference on Sustaining Progress

1 Sep 2004

The business before this conference is the ratification of the terms of the second module pay agreement under "Sustaining Progress".

The agreement, of which this pay module is a part, was negotiated in early 2003 which was a time of much uncertainty about the domestic and global economic outlook. The decision to negotiate, for the first time, a pay settlement for 18 months of a three year agreement was a reflection of this uncertainty on the part of both ourselves and IBEC. Inflation at that time was approaching 6 per cent, and unemployment was rising and economic growth was declining. The danger of "stagflation" - high inflation without economic growth was a possibility. The ESRI was forecasting a bad period of two years, with unemployment reaching 5.7 per cent, before the first signs of recovery in 2005. IBEC, you will recall made a big issue of "compliance" with whatever was negotiated and this demand was reflected in the structures of the agreement. It was the cause of much anxiety to a number of affiliated unions.

In the event Ireland came through the recession better than expected. While structural changes in the economy have increased redundancies in some areas, the overall level of unemployment remains low at 4.3 per cent. Economic growth will be about 4.7 per cent this year and perhaps in excess of 5 per cent in 2005. Although it is beginning to rise again because of oil prices, inflation has been brought into line with the rest of Europe, which was a specific objective of the agreement. The issue of compliance has turned out to be more of a challenge for IBEC than for Congress.

Our approach to the second part of the pay agreement was to seek an increase to cover both the cost of living and some share of increased productivity in the economy. We pressed for a wage formula biased towards the lower paid and we sought a range of benefit increases and structural improvements in the machinery of industrial relations. The latter were pursued in the context of a review of part 11 of the agreement.

The position of IBEC can be summarised as follows:

  • Negotiations to be limited to pay only;
  • Cost of living to be the only criterion;
  • Pay movement in other Eurozone countries to be the benchmark;
  • No consideration of a low pay element;
  • The amount by which the first phase exceeded inflation to be offset against the second phase.

I think it can be fairly asserted that on all these points our position prevailed although, of course, there can be a reasonable argument about the degree of success achieved.

Looking to the likely course of events over the remaining sixteen months of the agreement we can be more optimistic than the last time around. As indicated already, economic growth will probably exceed 5 per cent next year. But because Ireland is a very open trading economy we will be affected by global conditions. Specifically, the performance of the US economy, as the main source of demand, is still uncertain. Robust growth in the earlier part of the year has faltered somewhat but it may accelerate again. The pay agreement was negotiated by us on a forecast of inflation of 2.5 per cent this year and 3 per cent in 2005. This was a careful forecast in excess of what many commentators were saying. The ESRI, for example, was projecting rates of 2 per cent in both 2004 and 2005. I expect they will shortly revise that upwards. Even so it is not likely they will exceed our figures. The bottom line is that, on the assumption of oil prices staying within the range of $35 to $45 a barrel - or at least not exceeding that for any prolonged period - our forecast of 2.5 per cent for this year and 3 per cent for next is safe enough.

If this turns out to be accurate then it means that over the whole period of "Sustaining Progress" we should achieve a pay premium of about 5 per cent above the cost of living.

In my circular to affiliated unions dated 25 June I said that I expected that there will be significant increases in take home pay when the combination of tax and pay changes are taken together over the coming 18 months. This is based on discussions with the Minister for Finance and takes into account the commitment under section 3 of "Sustaining Progress" to take people on the minimum wage out of the tax net and to ensure that 80 per cent of tax payers pay no more than the standard rate. It also embraces our expectation that tax credits and tax bands will move to maintain the real value of the wage increases negotiated. It is important to reiterate - because it sometimes gets lost in public discourse - that our position on tax is more nuanced than it sometimes appears to be. We believe that good quality public services are essential to anything approximating a just society. We believe that current expenditure on public services is inadequate and that the tax base of the economy needs to be broadened to support increased expenditure. However, we believe this can be achieved without increasing the burden on PAYE tax payers.

The decision today should be viewed in the context of the full three year "Sustaining Progress" agreement and especially the ten special initiatives on social and economic policy. If the decision is in the affirmative the Executive Council will be communicating to government that it is the firm expectation of full delivery on those ten special initiatives. Congress has consistently stressed the importance of each social partnership agreement being able to show achievement of at lest one big flagship project, in this case the 10,000 affordable houses. The inflation in house prices remains outrageously high and is an intolerable burden on young people. Congress is determined to ensure that this problem is cracked by the end of the agreement.

The achievement of what is virtually full employment through social partnership has been a great achievement for this movement. Nevertheless many things remain to be done:

  • Industrial policy must adjust to counter the pressures of globalisation with a particular emphasis on education and training to maintain high employment;
  • The growing trend towards inequality in society must be halted through improving public services, appropriate wage formation, tax and welfare policies;
  • An infrastructure of caring capable of meeting the needs of parents, the elderly and people with disabilities must be put in place recognising the reality of high labour forces participation and demographic change;
  • The total inadequacy of occupational pensions to the needs of a population living longer has to be grappled with;
  • The adjustment to the phenomenon of inward migration must be achieved without developing the racial tensions experienced by our nearest neighbour.

Social partnership (or social dialogue as it is referred to in Europe generally) is most frequently attacked by people of a liberal economic persuasion who see it as an unwarranted interference with free markets. Yet a country is not just an economy and social dialogue is the European way of achieving a fair balance between economic and social development. It is a fact not always appreciated that 70 per cent of workers in Europe have their incomes set by wage bargaining through this process. My own view, though, is that wage bargaining on its own does not require social partnership. Unions can do this individually. The real importance of social partnership is that it can create a willingness amongst all key elements of society to pursue a limited set of objectives towards the attainment of the common good. If we can crack the affordable housing issue in "Sustaining Progress" I hope we can tackle some of the other challenges I have mentioned in future agreements.